Alistair Darling: Iceland won't repay £2.3bn debt 'for many years'
timesonline.co.uk
Alistair Darling admitted today that it was likely to be “many, many years” before Britain was repaid the £2.3 billion it is owed by Iceland after the collapse of Icesave.
Icelanders delivered a crushing no vote in a referendum on the repayment of the money lent by Britain and the Netherlands to compensate depositors in a failed bank.
A higher than expected 93 per cent of voters backed the Government’s hard line in a vote that attracted a surprising near-60 per cent turnout.
Today the Chancellor told BBC One’s Politics Show: “You couldn’t just go to a small country like Iceland with a population the size of Wolverhampton and say, 'Look, repay all that money immediately'.
“So we’ve tried to be reasonable, the fundamental point for us is that we get our money back — but on the terms and conditions and so on, we’re prepared to be flexible.”
Icelanders shot fireworks into the night sky over Reykjavik harbour to celebrate the referendum result.
It was, said one of the revellers, "a vote against debt slavery".
But the rejection in Iceland's first referendum since 1944 sends disturbing signals across the world where many states, from Greece in the south to Latvia in the north, are crippled by debt. Such a resounding no vote could, said the writer Eirkur Gudmundsson, echo around the globe "like the whistle of a steam train".
At stake was £3.48 billion owed to the British and Dutch governments. When Iceland was unable to cover the deposits of foreign Icesave depositors after the meltdown of October 2008, the British and Dutch governments jumped in. Now London and The Hague want their money back.
Iceland has said all along that it will meet its obligations — but has baulked at paying what it says are punitive interest rates. An amended law enshrining the terms of a deal was narrowly passed by the Icelandic parliament in December. Shortly afterwards however President Olafur Ragnar Grimsson vetoed the Bill — leaving a referendum as the only way out.
Many considered the referendum merely a piece of Icelandic brinkmanship to extract concessions from Britain and the Netherlands. Few were in any doubt that the Icelanders, still furious with Britain for using anti-terrorist legislation to freeze Icelandic assets, would vote no. And certainly Treasury and Dutch finance ministry negotiators had lowered their interest-rate expectations during talks over the past fortnight, worried that a no vote would slow repayment and be a public relations embarrassment.
Yet even the Prime Minister, Johanna Sigurdardottir, considered the referendum a mistake, a weakening rather than a strengthening of the Icelandic position. She boycotted the vote on Saturday, calling it "pointless since it revolved around legislation that is already obsolete".
On Sunday the Government indicated that it would not be resigning but would press on with talks with London and the Hague.
The Iceland Government indicated its intent to carry on as if the referendum had not happened.
"Over the past several weeks there has been steady progress towards a settlement," said Urdur Gunnarsdottir, foreign ministry spokeswoman. "In the context of these new talks, the British and the Dutch governments have indicated a willingness to accept a solution that will entail a significantly lower cost for Iceland."
Whether that will satisfy the financial markets is another matter entirely. The credit-ratings agencies have already threatened to downgrade the Icelandic krona to junk status in the event of a no vote.
Iceland is dependent on receiving the next tranche of an IMF loan and an Icesave settlement is crucial in establishing Reykjavik's credibility. Moreover Iceland is on the brink of beginning EU membership talks — British and Dutch goodwill are essential. |
