The Wall Street Journal reports that Iceland’s president vetoed a bill to reimburse the U.K. and Netherlands for bailing out depositors of failed Icelandic banks. Apparently, a referendum will nonetheless go forward next month in which the voters will decide whether or not to repay $6 billion plus interest over 15 years. The Journal notes that the obligation comes to $20,000 for each of Iceland’s 300,000 inhabitants.
It’s understandable that Icelanders wouldn’t want to pay two foreign countries for actions they took to reimburse their own citizens’ deposits in Iceland. On the other hand, Icelanders benefited enormously from the economic bubble their banks promoted through irresponsible lending and investment, and when the bubble popped, Icelandic banks couldn’t honor their deposit insurance pledges, to Icelanders or foreign depositors. The likelihood of Iceland defaulting on its debt is raising the prospect of the International Monetary Fund cutting off aid to Iceland’s depressed economy.