Iceland’s public could be setting themselves up for a new credit crunch.
They are about to reject the interest and payment terms of a 3.8 billion euro loan from the U.K. and Holland in a referendum, despite the fact that their parliament already enshrined the terms.
Across their rugged island, Icelanders are preparing this weekend to reject a deal supposed to end the bitter Icesave dispute between Reykjavik and London.
About 75 per cent of Iceland is expected to vote “no” in an emotionally charged referendum to be held tomorrow. Despite last-minute negotiations with the UK and the Dutch finance ministry, the referendum looks a lost cause.
It could strangle Iceland from accessing much-needed cash:
A “no” vote could be an existential decision for Iceland, cutting it off from global markets. An Icesave settlement is needed to free up funds from its $10 billion IMF rescue package. Without that money, it cannot invest in its aluminium or geothermal energy sectors and its debt crisis will deepen.
Passions are high, and one wonders if people really understand what they are voting against:
“The vote is not just about Icesave,” says Magnus Arni Skulason, whose InDefence group is working for a “no” vote. “It’s about our pent-up anger at the situation.” Dadi, an economic blogger in Iceland, articulates how the meltdown has had a impoverishing effect, saying: “My mortgage has soared and I’m in negative equity. I have lost my pension and some savings and I lose every time I shop for anything in Icelandic kronas anywhere on Icelandic soil. I have lost two jobs, I have lost income and I have lost through high interest rates. I have lost public services yet I am paying more for less all over the place. Like most ordinary Icelanders, I am a big, bloody economic loser.”
Ironically, Icelanders who vote ‘No’ will probably have even more economic problems to complain about if they muscle their current creditors and thus scare off future ones.