Iceland was plunged back into crisis after its president refused to sign a bill promising to repay more than €3.8bn (£3.4bn) to Britain and the Netherlands after the collapse of the country's Icesave bank in 2008.Mish has the correct analysis of what happened and his post is worth reading. Here's a quote:
Olafur Grimsson said he would force a referendum on the deeply unpopular legislation, causing a schism within the Icelandic government, with prime minister Johanna Sigurdardottir maintaining that the money would be repaid.
Noridicom shows there were 116,000 Iceland households in 2005. Let's assume the number is 120,000 today. The household payout would be $41,666.67
Now how long would it take the average Icelandic household to pay that back? I commend Iceland for figuring out that a loan from the IMF is simply not worth the price.
The irony in this mess is that Fitch immediately downgraded Iceland. Heck, the way I see it Iceland ought to be upgraded. With a debt overhand from the IMF, Iceland would have had a default looming over its head for a decade with it citizens struggling under a burden of that debt for a decade or longer.
Iceland may have other problems but at least that one was resolved (hopefully), the quick and painless way. And that should have been the model for US banks as well.