Iceland's vote raises prospect of junk rating
By Anna Ringstrom |
April 15, 2011, Friday
|
Print Edition
Print Edition
ICELAND'S credit ratings could be downgraded into "junk debt" status after its voters rejected a deal to repay Britain and the Netherlands for losses from a banking crash, Standard & Poor's said.
A deal providing a state guarantee for repaying more than US$5 billion to the British and Dutch for money spent compensating savers who lost money as banking group Landsbanki collapsed in 2008 was rejected in a weekend referendum.
Prime Minister Johanna Sigurdardottir highlighted the risks the nation faced as a result of now having to go to court to settle the matter.
"The Icelandic electorate was presented with two evils last Saturday - to assume a responsibility they believe is not theirs, or to risk a verdict that may be heavy to carry," Sigurdardottir said.
Economists have said failure to resolve the issue could delay progress in loosening currency controls, deter investment and weaken an already battered credit rating.
Sigurdardottir had previously argued that Iceland should strike a deal with its creditors and put the matter to rest. But on Wednesday she changed tack, saying there was some ambiguity in what Iceland should actually be responsible for.
"The government of Iceland has always said it would honor its international obligations, but there is a great deal of uncertainty as to what these alleged 'international obligations' entail in actual fact," she said. "Opinion on and interpretation of the European directive in question is highly disputable."
S&P said it had put Iceland on its list for a downgrade due to higher economic risks in the wake of the "no" vote.
A deal providing a state guarantee for repaying more than US$5 billion to the British and Dutch for money spent compensating savers who lost money as banking group Landsbanki collapsed in 2008 was rejected in a weekend referendum.
Prime Minister Johanna Sigurdardottir highlighted the risks the nation faced as a result of now having to go to court to settle the matter.
"The Icelandic electorate was presented with two evils last Saturday - to assume a responsibility they believe is not theirs, or to risk a verdict that may be heavy to carry," Sigurdardottir said.
Economists have said failure to resolve the issue could delay progress in loosening currency controls, deter investment and weaken an already battered credit rating.
Sigurdardottir had previously argued that Iceland should strike a deal with its creditors and put the matter to rest. But on Wednesday she changed tack, saying there was some ambiguity in what Iceland should actually be responsible for.
"The government of Iceland has always said it would honor its international obligations, but there is a great deal of uncertainty as to what these alleged 'international obligations' entail in actual fact," she said. "Opinion on and interpretation of the European directive in question is highly disputable."
S&P said it had put Iceland on its list for a downgrade due to higher economic risks in the wake of the "no" vote.
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