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Should Norway bail out Iceland?
While not exactly pocket change, Iceland’s $5.5 billion Icesave debt to Britain and the Netherlands amounts to just 1.2 percent of the value of Norway’s offshore wealth fund. For Iceland, it’s more than $15,000 per citizen.
Given the two countries’ close historic links — Norwegian Vikings discovered the Atlantic island where people still speak a version of “old Norwegian” — speculation about Oslo coming to the rescue has Reykjavik licking its lips.
It would take some coaxing of the Norwegian electorate, but why shouldn’t Oslo help out its crisis-hit cousin, Icelandic newspapers are asking.
On muted idea has Norway buying Icesave debts and allowing Reykjavik to repay the loans on better terms than it has gained from the Dutch and British governments.
The standing terms, a 5.55 percent fixed annual rate for the next 15 years with no payments for the next seven years, are deemed unfairly high by most Icelanders and set to be overwhelmingly rejected in a referendum on the Icesave bill this Saturday.
Unlike Germany, which fears it will have to bail out fellow euro-member Greece by taking cash from its own people or issuing more debt, Oslo would simply tap into savings and ensure the loan gets repaid before its oil runs out in a few decades.
But finding bailout advocates in Oslo is proving tough.
Finance Minister Sigbjoern Johnsen has said that he would not reject outright any proposal for additional aid from Reykjavik, if such a request was made, but quickly added that Norwegian aid hinges on continued support by the IMF, which is overseeing Iceland’s economic reforms.
Norway is not in the business of rescuing countries back from the brink of economic collapse. Nor does it want to become Iceland’s main creditor because it could be forced into a de-facto policeman role, monitoring Reykjavik progress with tough reforms so that it will get its money back.
There are also concerns that unilateral help from affluent Norway, which already provides part of a $2.5 billion IMF-supervised loan with other Nordic countries, may trigger requests from other hard-up debtors seeking relief.
“If we bail out Iceland, who is to say that Greece won’t come knocking next and telling us that we really owe much in terms of our democracy and culture to the ancient Greeks?” asked one Oslo-based economist. “Lots of Norwegian pensioners live in Spain, so we have interests there too.”
What do you think, should Norway share its oil savings with Iceland?