Financial analysts Standard & Poor’s are waiting on more extensive international reactions to last weekend’s No vote on the Icesave agreement before making a new assessment of the Icelandic economy, although the outlook is anything but optimistic.
While Icelandic politicians have emphasised that the No vote on Icesave will not mean that no money will be paid, it does mean the Icelandic government is effectively saying that they have no legal obligation to pay. However, the EFTA Surveillance Authority has said that Iceland is in breach of the EFTA agreement and that if the matter remains unresolved, it will be taken to EFTA court. Dutch and British authorities have both said they intend to take the case before a judge.
This fallout has prompted Standard & Poor’s to consider downgrading Iceland’s rating, with S&P’s credit analyst Eileen Zhang telling Reuters, “The prolonged dispute over the Icesave issue could weaken Iceland’s relationship with other European countries, increase its external financing risks, and hinder Iceland’s economic recovery prospects as well as delay the lifting of capital controls and its return to international capital markets.”
Eyjan now reports that S&P is waiting on reactions to the Icesave vote from Iceland’s lenders, in particular the Nordic countries. Finland, for one, has said in the wake of the referendum that loans the country had slated for Iceland need to be discussed again.
S&P emphasises that they do not intend to take part in expressing an opinion on whether it was right or wrong to vote No on the Icesave agreement; that their upcoming rating will be based solely on the reactions of Iceland’s lenders and foreign claimants.