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Icelandic recovery at stake
Jonah Hull reports from Rekjavik where the government struggles to keep the economy alive.
Last Modified: 08 Mar 2010 12:30 GMT
Protests in Iceland's capital demanded the government do more to improve the economy [AFP]

Iceland's anger is undiminished. Or perhaps, flourishing.

A year-and-a-half ago this was one of the wealthiest nations on earth. Now, despite slight signs of life in economic growth figures for the last quarter of 2009, the country has become dependent on foreign loan capital to survive.

The International Monetary Fund has promised $2.1bn in return for a stringent economic reform programme that Iceland says it has carried out to impressive effect. Civil service pay has been slashed and taxes hiked. But still only half the money has materialised. 

The reason, Iceland claims, is that Britain and the Netherlands have used their influence to hold the rest of the IMF money back - until the Icesave issue is settled. And that has reignited the flames of Iceland's ire.

With the weather severely against them, Icelanders went to the polls on Saturday to vote on legislation about loan repayment. It comes as no surprise that they returned a resounding NO to pay back just over $5bn to the British and the Dutch for bailing out savers in the failed online bank Icesave. 

National pride

The difficulty comes in understanding the many meanings of the word 'no' in the Icelandic context.

In depth

  Video: Iceland's debt debate
  Focus: Iceland's recovery is at stake

Some voters certainly did come out against paying a single krona's worth.

For others, 'no' was a statement of national pride.

Still others meant 'no' to the government that capitulated to disadvantageous payment terms contained in the law in question.

But most Icelanders I spoke to - in addition to the government, and even the President who called the referendum - did not intend a no vote to mean no repayment at all. 

They were instead hoping for a fair settlement; lower interest rates that reduce the overall debt burden and ensure the British and the Dutch don't profit from the deal. Iceland is adamant responsibility should be shared three-ways.

Regulatory failure?

It was not just their banks that failed, but also the European regulators who allowed Iceland's banks to operate overseas in the first place. 

Iceland says it will pay what is fair, but not a jot more.

And to that end, now that the referendum is over, the hope is negotiations will continue until an acceptable deal is reached.

Better terms than were contained in the legislation are already on the table, but there is room for improvement still.

But that all depends on the bigger countries properly understanding what tiny Iceland means when it says 'no'. 

Much is at stake; not just IMF money and loans to come from the Nordic countries. European accession talks could be stalled as well. Most of all, Iceland's recovery is at stake. Derailing that would prove the highest cost of the country and Europe.

Source:
Al Jazeera
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