Cause and Effect in European Politics and Law

The crisis is leaving the table. Who's going to pay the bill?

Ralitsa Kovacheva, March 7, 2010

Icelanders refused to pay nearly 4 bn euro to Britain and the Netherlands in compensations for the depositors of the Icesave bank which went bankrupt. More than 90 per cent of the voters in a referendum on March 6th voted against Iceland paying the money. In 2008 London and the Hague compensated their citizens who suffered from the bankruptcy of the bank and wanted Reykjavik to recover. Literally on the eve of the referendum the negotiations among the three countries failed again.

Thus, Iceland's government could not avoid the vote, organised after the country's institutions could not agree on the compensations issue. In the end of last year the national parliament endorsed a legislation, allowing compensations for foreigners up to 3.8 euro. In January this year, however, president Ólafur Ragnar Grímsson imposed a veto, responding to a petition, signed by 60 thousand people.

Icelanders, whose country was one of the first worst hit nations by the crisis, think that they should not be punished for bankers' mistakes. According to president Grímsson, even the British and the Dutch admit that the deal is not fair and this a great success of the referendum.

The financial minister Steingrímur J. Sigfússon tried to play the results of the referendum down by assuring that no matter what the results were, the country would meet its obligations. A possible Reykjavik's refusal to pay compensations, could endanger billions of dollars of a loan from the IMF and other states which Iceland is anticipating to support its economy.

Besides, this would cast a shadow over Iceland's application for EU membership, filed last July. In the beginning of February, prime minister Johanna Sigurdardottir called on EU leaders not to bind an IMF assistance with the Icesave compensations dispute. In the meantime, data show that Iceland's economy achieved 3.3% growth in the last quarter of 2009, which is against the background of a 6.5% overall contraction for 2009 and 7.2% drop for the third quarter.

The resolution of Icelanders not to pay "foreign" debts reminds of the reaction of the Greeks regarding the measures of the government in Athens to save the country from bankruptcy. But unlike Iceland, Greece is not only an EU member but a eurozone member too. The common ground between the two countries is the firm refusal of their populations to pay for the mistakes of those to blame for the crisis whoever they are - the bankers, the government or the international situation.

These moods, of course, are delicately directed by some politicians who, in spite of the big risk for the financial survival of their countries, benefited from the situation in order to win public support. Like the president of Iceland who, by blocking the compensations law, responded to the will of 60 thousand people (the population of Iceland is 300,000). Or the Greek deputy prime minister Theodoros Pangalos who blamed the incompetent EU leadership for the crisis and pointed a finger to Germany for not compensating Greece for damages from World War Two.

That the global crisis hit badly a lot of countries is a fact, but why these two states are on the verge of bankruptcy? How did it happen so that in the past years Iceland's banks piled debt, 12 times larger than the economy of the country itself? And Greece for years presented false data about its financial situation while, in the same time, it had traded its debt to cover the problems.

The truth is that neither the Icelanders, nor the Greeks, nor the Americans could distance themselves from politicians and bankers and say "this mess is not ours, you deal with it". Now, even when according to the most skeptic analysts the end of the crisis is near, the question is how the world to move on. A consensus might be difficult to achieve but it is the only option. Because when the crisis gets up from the table, we all will have to pay the bill.