Short-Sighted Icelandic Referendum Ignores Probable Repurcussions

With a decision to put the repayment status of sovereign financial obligations to a referendum, Icelandic President Olafur Ragnar Grimsson is weakly succumbing to the voices of the mob rather than following reason and common sense. The island nation of about 300,000 currently owes the UK and The Netherlands about $5 billion in the aftermath of economic and currency collapse and resulting bailouts and loans. Though the Icelandic parliament has put forward legislation that would result in the return of loans to creditors, Grimsson has hesitated to put his pen to the paper in the face of opposition from citizens as approximately a quarter of the population have signed a petition with the aim of scrapping the bill. While the burden on each citizen is high at over $15,000 per capita, and while it may not seem fair to many to pay for the sins of a failed bank, the implications of a short-sighted no vote would be far ranging and incredibly damaging to a country trying to get its economy and way of life back to relative normalcy.

Iceland is already working with the IMF on its issues, but the fund is not likely to continue assisting it if loans are defaulted on. Additionally, other countries, particularly Nordic neighbors, will be increasingly weary in dealings with Iceland and loathe to loan additional and much-needed funds. Finally, any hopes of EU membership would surely be swiftly dashed in the face of default. Such loss of lifelines and resources would put the country in even more of a precarious position than it is already in, with the repurcussions likely reverberating for at least a generation. Though elected representatives should listen to the voice of the people, it is also true that they have a responsibility to make difficult, and sometimes unpopular decisions, when necessary.

Once the government nationalized Landsbanki in 2008, it became the responsibility, for better or worse, of all Iceland's citizens. Refusing to meet the obligations of the bank, and therefore the nation, will result in almost incalculable harm to the reputation and future economic prospects of the recovering state. Hopefully the signatures on the petition urging lawmakers to abandon repayment plans represent the sum of all citizens opposed to the plan, in other words a vocal (albeit very vocal) minority. If this is the case, there is still a chance that the referendum could result in a payback. Otherwise, a very short-sighted citizenry and president will be doing not only short-term, but also very long-term damage to the prospects of a struggling nation.

1 comment:

  1. The Economist weighs in on the topic: