An opinion piece in the Financial Times contends that the Icelandic parliament’s redrawing of debt conditions with regards to Icesave fights “oppressive measures” and “promises to lead the pendulum swing away from the ideology that debt repayments are sacred.”
The main thrust of the article is that the pressure placed on Iceland from the UK and the Netherlands has created rising resentment, and that the conditions demand Iceland tax their people more and cut their budget more severely.
“There is a limit to how much foreign payment an economy can make. Higher domestic taxes do not mean a government can translate this revenue into foreign exchange. This reality is reflected in Iceland’s position on its Icesave debt – estimated to amount to half its entire GDP.
In taking this stand, Iceland promises to lead the pendulum swing away from the ideology that debt repayments are sacred.”
The article comes to the conclusion that the UK and the Netherlands must realize that they cannot squeeze every last penny out of Iceland, adding, “Will Britain and the Netherlands accept Iceland’s condition? Trying to squeeze out more debt service than a country could pay requires an oppressive and extractive fiscal and financial regime, Keynes warned, which in turn would inspire a nationalistic political reaction to break free of creditor-nation demands. This is what happened in the 1920s when Germany’s economy was wrecked by the rigid ideology of the sanctity of debt. … Something has to give. Will rigid ideology give way to economic reality, or the other way round?”