Iceland: economic meltdown 2.0

Political row

Iceland's economy is again under threat after the island nation's president refuses to sign a bill to repay billions lost in the country's collapsed financial system.

With the snow thundering down in the UK today, grinding many businesses to a halt, it seems somewhat fitting that snowy Iceland finds itself back in the news.

Yesterday saw the country's president blocking a bill to pay Britain and Holland up to GBP£3.4 billion for Icesave depositors. The move threatens to undermine the island nation's efforts to repair international relations following a meltdown of their economic system at the height of the 2008 economic crisis.

According to reports in BusinessWeek, Icelandic president Olafur R. Grimsson had told reporters that "the cornerstone of Iceland's constitution is that the nation is the highest judge for the validity of law."

However, the controversial move by the nation is set to plunge Iceland back into crisis.

Refusal

Grimsson's refusal to sign the bill, which promises to repay more than 3.8 billion euros to Britain and the Netherlands, has also been backed up by warnings that the president would also force a referendum on the deeply unpopular legislation.

His actions are also likely to rock the Icelandic government, with Prime Minister Johanna Sigurdardottir maintaining that the money will be repaid

Perhaps most worryingly of all, however, is the fact that the row is likely to threaten any sense of recovery that had been predicted for the country. In fact, credit rating agency Fitch immediately downgraded the nation last night after the row blew up. According to their reports, the latest political row marks a "significant setback" for recovery.

Reports show that almost 300,000 British savers had deposits with Icesave, attracted by market beating interest rates. Their accounts were frozen in October 2008, sparking a diplomatic row between Britain and Iceland. Britain outraged ordinary Icelanders at the time by invoking anti-terrorist legislation to freeze the UK assets of Landsbanki.

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