1.19.2010

"Murky geysers run deep": Iceland at the Precipice

























Iceland’s credit risk may rise “considerably” as the island faces the threat of a shelved emergency bailout and a government collapse, Standard & Poor’s said.

The recent decision by the Icelandic President to block an Icesave creditor accord with the UK and the Netherlands did not surprise me.  Protestors were taking to the streets back in August during my visit to Iceland, as in the photo above where a man hangs things on a line in front of Althing, the parliament building in downtown Reykjavik.  And outright protesting is supposedly a very rare thing there.

The electorate's will to block a settlement that would continue IMF and Nordic aid makes it look like the government will be left with little room to maneuver:

The so-called Icesave bill, which allows the government to guarantee a $5.5 billion loan from the U.K. and Netherlands to repay depositor claims, is due to be put to a referendum by March 6. Most polls since Jan. 5 show Icelanders will reject the legislation, which lawmakers passed 33 to 30 on Dec. 30.

A looming crisis seems especially ominous for the island nation - a country that, while it modernized very rapidly at the end of the 20th century, took a very long time initially to catch up with an international sense of modernity given its harsh, far flung geography.  The precariousness of a place that has to import a great deal of its essential commodities (even if the island had a trade surplus last year) struck me during my visit.