28th Jan 2021

Latvia backs Iceland in debt wrangle

Latvia has sided with Iceland's president in the country's debt dispute with the UK and the Netherlands, saying that threats against Reykjavik in the wake of the president's refusal to sign a bill scheduling debt repayment to London and the Hague would never happen if the debtor had been France instead.

"Is this reaction due to the fact that Iceland is a small country? It is difficult to imagine that similar comments would be heard if, for example, such a step had been taken by the French president," said Latvian foreign minister Maris Riekstins, denouncing "the exaggerated response of some European politicians."

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

London and the Hague have hinted that they may block Iceland's EU accession or obstruct the IMF's $10 billion rescue package for the country.

On Tuesday (5 December), Iceland's president, Olafur Ragnar Grimsson, refused to sign a bill passed by the Althingi, the country's parliament, that would see Reykjavik pay back London and the Hague the €3.8 billion they spent to compensate British and Dutch savers who lost money the previous October when their accounts with the online savings account Icesave were frozen following the collapse of the parent company, Landsbanki.

Mr Grimsson made the move following a series of protests against the bill and a petition signed by a quarter of the small country's electorate. The government has called a referendum on the legislation for 20 February.

Fitch, the international rating agency, responded by downgrading Iceland's long-term foreign currency credit rating to junk status. Standard and Poor's has also threatened a down-grading.

The government has scrambled to limit the damage caused by the president's decision. On Wednesday, finance minister Steingrimur Sigfusson spoke to the UK and Netherlands to try to calm the situation and telephoned his Swedish counterpart on Thursday. Reykjavik has also announced that the minister would meet with the Norwegian and Danish finance ministers on Friday to try to convince them to maintain lines of credit.

The country's left-wing government tried to assure markets that Iceland remained creditworthy: "Despite the president's decision, the government of Iceland remains fully committed to implementing the bilateral loan agreements and thus the state guarantee provided for by the law," the government said in a statement.

The pro-EU coalition also worries that the dispute is rapidly unravelling its plans to join the bloc. Perceptions that Brussels has sided with the Netherlands and the UK, both EU member states, in the dispute have caused popular support for European adhesion to plummet.

Iceland had offered a payment schedule to the British and Dutch governments, but limited to what the country was able to pay. This would amount to an upper limit of four percent of growth in GDP in the case of the UK and two percent in the case of the Netherlands. If the economy did not grow, the country would hold back its payments and after 2024 what remained of the debts would be written off.

London and the Hague however refused Iceland's offer, forcing the Icelandic government to narrowly pass a bill that would schedule repayment of the entirety of sums - worth around 40 percent of Iceland's GDP - and without such conditions. Estimates suggest that every household will have to contribute around €45,000. Icelandic critics of the deal say it puts the interests of UK and Dutch creditors ahead of domestic social programmes at a time when public spending is a vital part of the country's recovery and compare the repayment schedule to the reparations Germany was forced to pay after the First World War.

Separately, in an unusual move, British and Dutch anti-poverty campaigners, normally focussed on hardship in third-world countries, have rallied behind the Icelandic president.

Jubilee Debt Campaign, the UK-based ecumenical charity that works toward the cancellation of developing country debts, and Both Ends, a Dutch development NGO, have accused London and the Hague of putting the north Atlantic island in the same position as many nations in Africa, forced to cut domestic social expenditure in order to pay back huge debts to creditors.

The UK campaign group cheered Mr Grimmson's move: "Iceland's president was correct to assert that states in debt have rights that trump the rights of creditors to bleed their economies dry."

They argued that the British and Dutch governments share responsibility for not effectively regulating Icesave along with other banks. "Instead, [they] have decided to make the ordinary people of Iceland bear sole responsibility for the faults of the bankers."

"Iceland has only two choices: to pay its creditors on whatever terms they demand, or to default and see its economy sent into tail spin by unaccountable economic institutions," said the group's director, Nick Dearden.

The two groups are calling for independent arbitration of the Icesave dispute by the United Nations or the Permanent Court of Arbitration in the Hague.


Does North Macedonia really exist?

Its language and history give North Macedonia its identity for president Stevo Pendarovski, but, for Bulgaria, neither of them are real, in a dispute holding up EU enlargement.

Spain to recognise Kosovo if it gets Serbia deal

Spain would be prepared to recognise Kosovo if it clinched a deal with Serbia, Madrid has said, in the first positive signal of its kind since EU-brokered talks resumed.

Kosovo to restart EU/US-led Serbia talks

Restarting talks on Serbia relations will be the new Kosovo prime minister's top priority, he said, but will the EU or the US lead the process?

News in Brief

  1. Putin holds out olive branch to Europe
  2. US snatched Russian anti-air system from Libya warlord
  3. UK to extradite alleged trafficker to EU despite Brexit
  4. EU puts trust in Boeing 737s after post-crash ban
  5. EU animal-export trade under harsh spotlight
  6. City of London wants to set rules for EU
  7. MEPs want 2030 targets to reduce consumption footprint
  8. Coronavirus cases worldwide pass 100m


Montenegro's membership can inspire the European Dream

Today (15 December) I come to Brussels with a simple purpose: to present the credentials of my country, Montenegro, to become the next member state of the European Union, writes prime minister Zdravko Krivokapic.


Does North Macedonia really exist?

Its language and history give North Macedonia its identity for president Stevo Pendarovski, but, for Bulgaria, neither of them are real, in a dispute holding up EU enlargement.

Stakeholders' Highlights

  1. UNESDAEU Code of Conduct can showcase PPPs delivering healthier more sustainable society
  2. CESIKlaus Heeger and Romain Wolff re-elected Secretary General and President of independent trade unions in Europe (CESI)
  3. Nordic Council of MinistersWomen benefit in the digitalised labour market
  4. Nordic Council of MinistersReport: The prevalence of men who use internet forums characterised by misogyny
  5. Nordic Council of MinistersJoin the Nordic climate debate on 17 November!
  6. UNESDAMaking healthier diets the easy choice

Latest News

  1. Poland imposes anti-abortion law amid EU concern
  2. The EU's vaccine strategy - the key points
  3. EU-AstraZeneca row flares up after vaccines shortfall
  4. First Covid, now McKinsey - how austerity hit EU healthcare
  5. Frontex suspends operations in Hungary
  6. Cyprus: a heavy caseload for new EU prosecutors office
  7. MEPs: Portugal 'risks undermining' trust in EU prosecutor
  8. EU to control vaccine exports in row over delays

Join EUobserver

Support quality EU news

Join us