Reykjavik refusniks

12 April 2011 By Neil Unmack Follow @unmack1

Voters in Iceland think they are acting out of principle. They should be more pragmatic. By rejecting a deal over compensation for failed bank Landsbanki, they risk paying more in future. It’s a gamble the country may win, but shouldn’t be taking.

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Iceland's electorate voted on April 10 to reject a settlement struck last year with the UK and Dutch governments over compensation for payments made to depositors of failed bank Landsbanki. Under the plan, Iceland would have assumed liability for minimum payments owed to depositors of the two countries when Landsbanki failed in 2008. The UK and Dutch governments paid 2.1 billion pounds and 1.34 billion euros respectively.

Under the rejected proposal, Iceland would only be liable for losses above the amount recovered from the remnants of Landsbanki, and could spread repayment over up to 36 years. The net cost for the Icelandic Treasury was estimated to be 50 billion crowns (307 million euros), or just over 3 percent of GDP.

Icelanders voted 40 percent in favour of the plan, and 60 percent against.

Iceland's fiveyear credit default swaps were 274 basis points on April 11, only 2 basis points wider than before the referendum result, according to Markit.

Reuters story: Iceland again rejects debt deal, court case looms

Context News

Icelanders voted 40 percent in favour of the plan, and 60 percent against.

Iceland's fiveyear credit default swaps were 274 basis points on April 11, only 2 basis points wider than before the referendum result, according to Markit.

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