In The Hague, in the VVD party (economicic liberals, who should know better) heads are exploding with such impeccal timing, that it simply looks contrived to me.

The reason Iceland is bankrupt is not the Icesave deposit guarantee but the blanket guarantee of all bank liabilities which were 900% of Iceland's GDP in 2007.

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

in the case of Iceland, it is clearly odious to demand that their taxpayers foot the bill for the fraud and gambling that was going on in their banking sector. So the Brits who got defrauded should seek redress from the fraudsters and/or their own government.

On the other hand, Iceland can hardly claim debt relief on the grounds that the debt is odious until and unless it shows some willingness to actually prosecute the fraudsters responsible. This has, as far as I can tell, never been seriously considered

Tens of thousands of investors--individuals, municipalities, and charities--took advantage of the exceptionally high rates offered on Landbanki's IceSave savings accounts, only to discover that these accounts were not formally backed by any government. Landsbanki officials had inexplicably failed to register as a domestic bank in either country, and thus were not backed by government deposit insurance. When Landsbanki went into receivership on October 7th, British authorities invoked anti-terror legislation on October 8th to freeze Landsbanki's assets there.

... Ólafur Ragnar should sign the bill because it's the right thing to do, and because the consequences of rejection would be disastrous.

...

[If the bill is not signed] the current government would almost certainly fall, and any chance at reasonable reform would die. The conservative Independence Party that ran Iceland until the collapse would retake power and restart the party. The businessmen whose reckless actions placed the county in danger would return with the illicit funds they've placed in off-shore accounts and buy Iceland's resources for a song.

Most importantly, the new government would take whatever steps necessary to ensure that these culprits never see the inside of a jail cell. The investigation of the misdeeds that led to Iceland's collapse has proceeded very methodically, and the special prosecutor now appears on the cusp of indicting some of the Independence Party's biggest supporters. If the investigators are allowed to continue, we'll see whether the rumors of money laundering for the Russian mafia are true, whether vast amounts of money are indeed sitting in Tortola, whether bank employees exploited pension funds with same glee that Enron employees exhibited while ripping off California consumers, and whether our politicians and regulators were bribable.

...

By signing it, Ólafur Ragnar would ensure that the new government would be able to finish what it has started--a thorough investigation into the events that led to our fall. Unless Eva Joly and Ólafur Þór Hauksson are permitted to complete their task, not only will the wrongdoers escape justice, but we will show them that there are no adverse consequences for their incompetence and malfeasance.

Hidden amongst those DFH's were the CSH's, clean sacred hippies, whose vision undergirds much of what's come to be accepted in the mainstream these days.  But now submerged by the ascendence of Gordon Gekko as mainstream role model.

The past two years of watching the powers that be try to mitigate the damages from the unbridled greed by all parties, portends that solutions don't come within the miasma, even though everyone and their mother claims to worship thinking outside the box.

When we look at the fallout from the icelandic banking collapse within the frame of Mig's % of GDP numbers, current posturing becomes absurd.  It's time one of them scraggly CH's (Crazy Hippies) rolled down off the mountaintop, gathered the parties into a room, sent in a kilo of hash from war torn Afghanistan, locked the door, and said we'll let you out when all parties are smiling in written agreement.

Sure beats having the IMF mediate.

In that spirit, a small human reminder to intersperse in the debate.

(I know i posted this new year's morn, but to this globally addled CH, it's somehow relevant.  More to the point, watch how the audience stuns Springsteen in his tracks during the song, and after it's over, takes the show into it's own hands.  Well, i though it was metaphorical anyway.)

PS.  my solution likely isn't any less valuable than the two years wasted by the conventional wisdom attempt.  We now return you to your regular ET high level analysis.  Maybe there's a way to build that aluminum smelter with enough environmental checks that it really should go to Iceland, as long as the entire social structure profits.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin

Ummm...so, nation (EU member state nation) of domicile determines creditor pecking order in bankruptcy proceeding....and these guys are looking to join the EU?

Ok.

Look, we can talk about odious debts and whatnot all we want, but the thing is, Iceland is a representative democracy, arguably the oldest on the planet, and I've not read that this is changed and in fact a red/coalition is now in charge.

Its economic elites who managed the banks which have bankrupted the country (and make no mistake, the Icelanders are still in denial on this point, but their country is, in fact, bankrupt, playing by normal rules)  were overseen by regulators put in place by the people they elected. And so, any malfeasance is ultimately on the people. Understandably no one wants to admit they put in place people who gambled their money and now they are on the hook for 4 or 6 months salary in debt....but..they are.

If they had taken steps to put some bankers in jail, or better, served them to the English for UK-style Daily Mirror-reported justice, you know, I'd think this a mitigating factor excusing Icelander's shirking of their responsibility. Or, a complete middle finger to Europe, the UK and NL and withdrawal from Schengen (let's be consistent), making Iceland the Cuba of Scandinavia. Or both.

But this attitude of "screw of Dutch and the British" (because that is what they are doing) without any thought of real financial consequences (bye bye IMF guarantees, EU accession, Eurozone membership, bye bye favorable trade treaties allowing Iceland export to Europe virtually tariff-free) and also without assuming responsibility regarding punishing the guilty...fine Iceland, you can have the butter (renounce your debt) and the money from the butter (punish no one and pretend to be "independent") but et's see how Icelandic living standards are after a Cuba-style credit and tariff embargo for a couple of decades.

What, are they going to eat lamb, potatoes and herring for the next two generations? If they were really red/green they would try this, and I for one would be the first to applaud, but I think we all know the Icelanders won't do this. They still think they aren't bankrupt, and still haven't had the truth fed to them by the EU and the IMF. So, they have this fiction that they can renounce their debt, not punish anyone and still go on as little to nothing happened.

Ok. Good luck with that, Iceland.  

The Hun is always either at your throat or at your feet. Winston Churchill

Olafur Ragnar Grimsson, Iceland's president, has created uproar with his decision to block legislation that would have repaid €3.9bn ($5.6bn) lost by British and Dutch savers in a failed Icelandic bank, triggering a referendum that the government is expected to lose. The initial response by credit rating agencies was to downgrade Icelandic bonds, as if Iceland were repudiating its debts, Argentina-style. But opponents of the bill have no intention of reneging on their legal obligations.

At issue is what the relevant European law says should be done - and, more to the point, what should have been done on October 6 2008, when Gordon Brown closed down the UK operations of Icesave, an online subsidiary of Landesbanki, Iceland's second-biggest bank. Icelandic authorities were given no voice in how to resolve matters. Did the British prime minister let Iceland off the hook by jumping the gun in reimbursing depositors as though they were covered by UK insurance rather than following European Union procedures?

Icelandic voters are worried about how they reasonably can be expected to pay enough in taxes to cover the huge debt. The problem is that foreign debt is not paid out of GDP. It is paid out of balance-of-payments receipts from net exports, from the sale of assets to foreigners and from new borrowing. The market for cod is limited, and many of Iceland's quota licences already have been pledged to bankers for loans, whose debt service absorbs much of the export revenue. Interest charges also absorb most of the revenue from its aluminium exports and its geothermal and hydroelectric resources, leaving little taxable revenue behind.

There is also a dagger hanging over the heads of Iceland's homeowners: mortgages and other debts are indexed to the consumer price index. For an import-dependent country such as Iceland this, in effect, means the foreign exchange rate. Attempts to pay more foreign currency than the nation can generate in export earnings will cause the currency to depreciate and raise monthly mortgage bills. Many will lose their homes. Many already are. There is a moratorium on foreclosures, but it expires in February.

A pragmatic economic principle is at work in such conditions. Debts that cannot be paid, will not be (unless one pays back Peter by borrowing from Paul). At stake, therefore, is how much can be paid without wrecking Iceland's economy. How many Icelanders must lose their homes as carrying charges soar on mortgages indexed to the exchange rate? Emigration is accelerating, and many foreign workers already have left. How many more must depart? And if the post-Soviet experience of a steep and sudden drop in living standards is relevant, by how many years must Icelandic lifespans shorten?

"But I will not let myself be reduced to silence."

'Sapere aude'