[LINK] "Battle lines form over Iceland's borrowed billions"

[rfmcdonald]

The Icelandic president's decision to to guarantee British and Dutch deposits in Icelandic banks might play well at home, but internationally?

Iceland yesterday set the date for a referendum that will decide the fate of a £3.6 billion loan made by Britain and the Netherlands at the height of the banking crisis in 2008.

President Grímsson shocked world stock markets this week when he refused to sign into law a Bill that would have committed the country to a repayment schedule. The Government in Reykjavik has now proposed to put the issue to a referendum on February 20.

It wants to repay the debt so that it can continue to access a much-needed $7 billion of financing from Nordic nations and the International Monetary Fund. The loan was extended to Iceland after its savings bank Icesave collapsed, threatening the savings of 300,000 investors from Britain and the Netherlands.

Chancellor Alistair Darling telephoned his Icelandic counterpart yesterday to voice Britain’s determination to pursue the debt. Britain has warned that Iceland faces isolation if it does not pay. Steingrímur Sigfússon, the Finance Minister, said that the Government was keen to repay the loans.

[. . .]

Össur Stropheöinsson, Iceland’s Foreign Minister, indicated in an interview with The Times that he was confident the Government would be able to persuade voters to agree to repayment in the referendum. While the vote is expected to be close, Mr Skarphéöinsson said that the Government had the hardest hitters on its side. “The Prime Minister is a tough campaigner, and as for our finance minister, he is like a Roman gladiator,” he said.

Mr Skarphéöinsson warned the governments of Britain and the Netherlands not to interfere in the legislative process. “Despite the President’s decision, which I deeply regret, it has to be remembered that he exercised his constitutional right,” he said. “We in the Icelandic Government have to respect it, and so too do the British and the Dutch.”

The President, he said, had vetoed the Bill on the basis of a poor analysis. “We are on the road to recovery. The gross domestic product had not contracted as drastically as predicted. There has been no mass emigration.”

It was imperative to reach an accommodation, he said, because the repayment terms were intertwined with measures to open up Iceland.

The country needed to restore international financial credibility and win back the trust of the British and the Dutch to press ahead for fast-track entry into the European Union