Wednesday, February 03, 2010

Iceland Challenges Financial System

hat tip: anonymous commenter

Thanks to anonymous who provided the following comment and the above video link.

"Iceland may be the first Western democracy to be forced into South-American style debt-slavery. The IMF, in concert with the UK and the Netherlands, has attempted to strongarm the recently impoverished Island of 317,000 into paying over 3.6 billion pounds ($6.3bn) -- $86,000 per Icelandic family -- at 5.5% interest for the next generation. The money is not conventional government debt, but arises from the collapse of a private multi-national bank during the financial crisis.

The issue is so serious that the entire nation will vote on the issue towards the end of February 2010.

On December 30, 2009, after extraordinary diplomatic threats, Iceland's parliament passed narrowly a bill agreeing to pay the onerous terms. Only a few months earlier parliament had agreed to the full amount, but under more reasonable conditions.

The people of Iceland must be internationally supported, so they can feel safe in voting down debt-slavery. If Iceland falls, it won't be long before other countries suffer similar financial extortion."

Iceland will, in my view, vote down this bill, as they do not see the crisis as having been their fault. They are right and they are wrong, but whatever the cause, they don't feel they need to vote themselves into what anon describes as debt-slavery.

Their only real risk is becoming a financial pariah, but this may prove temporary as their economy recovers. There is no real pressure the IMF can exert, other than threats of no further loans. Investors are, of course, free to invest wherever they like or not at all, but this default/bankruptcy may not be enough to deter future investors.

Bankruptcy is not the end of the world. Portugal went bankrupt in 1910 and it's practically impossible to "foreclose" on a country. Various countries around Europe have been "downgraded" recently, including Ireland, and the outcome may be a more sustainable economic system in the medium to long term.

This may be good for Iceland.

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