Nobody's default but mine

21 November 2008 By George Hay Follow @gfhay

An Argentinestyle default on its mountain of debt might have reduced Icelanders financial pain. As it is, their main reward for acting honourably is huge tax hikes to pay for a $10bn IMF bailout. Yet if doing so brings EU membership closer, virtue may eventually be rewarded.

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The International Monetary Fund has agreed a $2.1bn loan to Iceland, part of a recovery package worth up to $10bn. The rest of the money is coming from a $3bn loan from Russia, Poland and the Nordic states, and a $5bn facility from the UK, Holland and Germany, which is intended to safeguard the overseas deposits of the collapsed Icelandic bank, Landsbanki.

Terms on the loans from nation states are as yet undisclosed but should be similar to the 4% rate charged by the IMF.

Icelandic GDP could fall by 9.6% in 2009, according to the IMF.

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