As Chris never tires to point out, debt which cannot be paid will not be paid. But how it will not be paid is a political issue. We have seen the kind of political pressure the UK was willing to bring to bear on Iceland.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

Here's hoping that Ecuador's debt repudiation is the first of many more to come, and that the Third World declares its own jubilee in 2009 without waiting for permission from Bono.

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Possibly related posts:

brettonwoodsproject.org: "The World Bank released a paper on 'odious debt' in September, following months of silence, confusion and denial about who was responsible for it and when it would become available. It adds to a growing number of initiatives examining the concept. 'Odious debt' is usually defined as that knowingly given to a despotic power to repress and not benefit its people. The broader term of 'illegitimate debt' describes all debts that have arisen from irresponsible, self-interested, reckless or unfair lending."

Felix "It's a liquidity not solvency crisis" Salmon: "'The world has changed,' said Humes -- we're now living in a world where not only Ecuador can default, but Iceland can default as well. And that's a world where defaults by small emerging-market countries simply don't have the systemic consequences that everybody thought they might have. I even heard Humes say something I never thought I'd hear a died-in-the-wool buy-sider like him say: 'Maybe,' he said, the solution to 'go back to Anne Krueger's model.'"

law.duke.edu: "[Patricia Adams] rejects the Paris Club process as a "backroom political deal in which the creditors are the judges and Iraqis have to plead for mercy," arguing that negotiations for debt relief within the Paris Club context serve to legitimize an illegitimate debt, regardless of the end result.8 Furthermore, Ms. Adams argues that the Paris Club debt renegotiations serve only to bail-out creditors -- bilateral creditors directly and commercial creditors indirectly -- that should have known better than to lend to an odious regime. She pointedly notes that Paris Club creditors are inherently conflicted -- they are the "judge, jury, and executioner"9 as they directly benefit from a less substantial debt reduction plan -- and cannot be expected to act equitably in restructuring negotiations."

1999, partay like it's: "Ecuador is the first Latin American country to default on "Brady bonds," named after the US Treasury Secretary Nicholas Brady, in the Bush administration, who devised them as a stopgap solution to the debt crisis of the 1980s. Much of the unrepayable debts of Latin American countries were transformed into dollar-denominated bonds for which the governments involved deposited collateral in the New York Federal Reserve Bank, in order to prevent an outright debt repudiation which would have shaken the world banking system to its roots."


Diversity is the key to economic and political evolution.

Iceland would see the biggest tourist invasion ever if they were to become the 51st state. It's a pretty big deal amongst the retiree community here to have visited all 50 states... Just paint up the little houses and put in a McDonald's and you're home free!

Plus, as potentially the swing state in the next election, and a total wild card for the pollsters, you'd see more politicians than New Hampshire.

Another plus, maybe I'd be able to buy decent kippers instead of the unidentifiable crud currently sold here as such...

All these blanket guarantees amount to a total victory of creditors over debtors. The problem has been passed on to the public balance sheet, and taxpayers, in an attempt to make debtors cough up their social income in addition to their current income and assets before they go bankrupt.

It's scorched earth policy.

The reality is that lenders knew (or should have known) that they were making loans that stood no chance of being paid back, and they should now be taking a hit. And they will. They've just decided to take everybody else with them.

In the long run, we're all dead. John Maynard Keynes

- Jake

Friends come and go. Enemies accumulate.

What it all boils down to is Iceland having about 1% of the population of the Nordic countries, which means the others can easily save them. Depending on political will of course.

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