Motley Moose – Archive

Since 2008 – Progress Through Politics

Helping Iceland

By: Inoljt,

Iceland is a small country in big trouble.

During the heady times of economic growth, its banks expanded operations far beyond what the country could possibly support. When the global financial crisis came, all three collapsed. Millions of depositors in Britain and the Netherlands would have lost their savings.

When banks collapse nowadays, fortunately, governments intervene. The governments of both Britain and the Netherlands guaranteed the accounts of their citizens. In total, this cost said countries approximately 3.9 euros (or 5.3 billion dollars).

Understandably, said countries were also angered at picking up the tab of Iceland’s failed banks. The root of Iceland’s current troubles lies in their demands that Iceland repay the €3.9 billion. To force Iceland’s hand, Britain – in a rather mean gesture – used anti-terrorism laws to freeze Iceland’s financial assets. This helped crush the country’s economy.

Now, there are two problems with the demands of Britain and the Netherlands.

More below.

Firstly, Icelanders really do not want to repay the money. To the average citizen, suffering for the mistakes of a few bankers smacks of unfairness. Giving money to what many view as a big bullying country is also unpopular. In a recent referendum on the question, 93% of voters rejected a deal to repay Britain and the Netherlands.

Secondly, it’s practically impossible for Iceland to repay the money. The country’s population, after all, numbers only around 300,000. The €3.9 billion in debt amounts to almost half of its GDP. Imagine if the United States owed $6.5 trillion to another country because of Goldman Sachs.

The best step for Britain and the Netherlands would just be to forgive Iceland’s debt – or, if that fails, to negotiate a very generous deal. Third World countries have their debt relieved all the time; there’s no good reason for Iceland to be an exception.

Perhaps United States can lend a hand. €3.9 billion is a lot  for  Iceland, but practically nothing for a country of America’s size. It may not even need to actually spend money to help Iceland; Britain, after all, still owes the United States £40 billion pounds (inflation-adjusted) that it borrowed from it to fight WWI.

More fundamentally, this situation may end very badly for the West. Iceland’s predicament brings to mind the massive reparations Germany faced after WWI – something which ended disastrously for all countries involved. Already hostility to Britain and the Netherlands is quite high in Iceland; it will probably rise further. Last November the president of Iceland accused its neighbors of betraying Iceland during its time of need.

There may come a time when the West is likewise in a dire strait – whether it be war, economic peril, or something else. It may need all the help it can get. Then Britain and the Netherlands may rue taking a country like Iceland for granted. In the best case scenario, Britain and the Netherlands get their €3.9 billion, and Iceland forgives and forgets. In the worst case – one of those “unknown unknowns” – their bullying may end up costing the West far more than €3.9 billion.


  1. meaning the financial industry, rakes trillions of dollars from the world’s economy and dump it into a recession and then reap billions more on the bailouts. Now it’s business as usual and they’ve got all the profits from before the crash and more since. The hell with the banks. It’s time to make them pay for their mistakes. People have died because of the games they played. Millions of people have been left destitute. Now we are supposed to put it all behind us and not blame anyone. Bullshit.

  2. jsfox

    I’m confused it was the banks that failed not the county. The British guaranteed British depositors not Icelandic depositors. Why does Iceland owe them a dime.

    Help the finance idiot out here.

  3. virginislandsguy

    and Britain does, simple as that. There is no real good reason why Icelanders have to pay just because Britain unilaterally decided to guarantee British deposits in Icelandic chartered banks. On the other hand, the people of Iceland are not completely innocent bystanders. They broadly benefited from the credit bubble in their small country. There was a report of explosions heard from a Reykjavík hotel casually reported as pre-repo autos being torched for insurance money.

    Very broadly, this is the first act in determining who is going to be the final bagholder of $trillions in losses from the credit bubble collapse worldwide. While I don’t think the Brits will prevail via an agreement with Iceland, I think they will get some relief by confiscating Icelandic assets outside Iceland.

  4. this is the first act in determining who is going to be the final bagholder of $trillions in losses from the credit bubble collapse worldwide.

    The people with the most power will take the smallest hit, if any. The poor and vulnerable will take the greatest hit. It is ever thus.

Comments are closed.