Iceland Was “Bullied” Over Bank Debt, Claims President Olafur Ragnar Grimsson

Iceland’s President Olafur Ragnar Grimsson has hit out at the European Union for allowing Britain and the Netherlands to “bully” his country into agreeing to guarantee repayment of the debts of the failed Icesave Bank.

Speaking to the RUV public radio station, Grimsson described the demands made by the British and Dutch governments as “absurd”, and called for the European Union to launch a probe into how these two governments were able to place so much pressure on Reykjavik.

Iceland’s President Olafur Ragnar Grimsson has hit out at the European Union for allowing Britain and the Netherlands to “bully” his country into agreeing to guarantee repayment of the debts of the failed Icesave Bank.

Speaking to the RUV public radio station, Grimsson described the demands made by the British and Dutch governments as “absurd”, and called for the European Union to launch a probe into how these two governments were able to place so much pressure on Reykjavik.

[quote]”The EU should investigate and face up to how in the world it was possible that EU member states agreed to support this absurd claim against Iceland,” he said, as cited by Reuters.[/quote]

Grimsson added that the British and Dutch governments, with the support of other EU nations, had persuaded the International Monetary Fund to pressurise Iceland and that former IMF managing director Dominique Strauss-Kahn had told Grimsson personally in January 2010 that he was unhappy that the IMF was being used as a “fist” against Iceland.

In the immediate aftermath of the 2008 global financial crisis, Iceland had to accept a bailout led by the IMF, accompanied by a programme of economic reforms, which have just been completed.

At the same time, Icesave’s parent company Landsbanki had collapsed in the fallout, causing 340,000 British and Dutch citizens to lose 3.9 billion euros (US$5.6 billion). As such, the British and the Dutch government had insisted that the Icelandic government compensate its citizens in the event that Landsbanki defaulted.

Simultaneously, the European Free Trade Association (EFTA)’s surveillance authority ESA had threatened to take Iceland to court if it did not pay the money, while Britain and the Netherlands hinted that they would hinder Iceland’s bid to join the European Union unless their government had to agreed to compensate their citizens.

Reykjavik, on its part, has twice tried to negotiate repayment deals, though on both occasions the deals were vetoed by Grimsson, who balked at making Icelandic taxpayers responsible for repaying – at a high interest rate – the debts of a private bank. Eventually his vetoes forced the issue to be pushed to referendums, which the voters subsequently rejected as well.

Late last week however, Landsbanki announced that it had successfully managed to recover enough assets to repay all “priority claims” and still have over 13 billion Icelandic kronur (80 million euros, US$114 million) left over, leaving the Icelandic government and its taxpayers off the hook.

[quote]According to Grimsson, as cited by AFP, the news also “shows us that this matter should have been handled sensibly from the beginning, that it was absolutely unnecessary to put the Icelandic people and our cooperation with the European nations in a straightjacket.”[/quote]

“Experience now shows … that it can be sensible to wait,” he said, adding that rushing in to agree with the British and Dutch demands would have been calamitous.

Landsbanki have said they expect to begin repaying the Icesave debt before the end of this year.