Referendum Masochism: The Icelandic Hurt Locker

Cue Nine Inch Nails sing-along, the late Johnny Cash, or NC-17 "Sad Kermit":

I hurt myself today to see if I still feel
I focus on the pain--the only thing that's real
The needle tears a hole, the old familiar sting
Try to kill it all away, but I remember everything...

Well this result isn't exactly a surprise: a t the start of the year, I commented on how the "I wash my hands off it" Pontius Pilate moment of Icelandic Prime Minister President Olafur Grimsson [1, 2] was bound to backfire on the country as the angry masses heaped further pain on the star-crossed nation. Well now the referendum Grimsson called for instead of signing the so-called Icesave plan into law has shown the inevitable result. Icelanders can bicker till the salmon come home (whatever that means) about the unfair burdens being placed on them by the casino capitalist meanderings of a few, but consider what they've done:

1. Jeopardize already downgraded credit ratings;
2. Offend two EU members when it wants to enter the Eurozone to help prevent future balance of payments crises;
3. Annoy the IMF by clouding repayment prospects due to likely negative market reactions

The WSJ article has more on these points:

Still furious over the crippling aftermath of the global financial crisis, Iceland's voters on Saturday resoundingly rejected a $5.3 billion plan to pay off Britain and the Netherlands for debts spawned by the collapse of an Icelandic Internet bank, according to initial results. Results returned from around 83,500 ballots -- or more than 40% of the total ballots expected -- counted so far showed that 93% of voters said "no" in the referendum, compared to just 1.5% who said "yes."

Icelanders were deciding whether to back a plan outlining the payment of $3.5 billion to Britain and $1.8 billion to the Netherlands as compensation for funds that those governments paid to around 340,000 of their citizens who had accounts with the collapsed bank Icesave, an Icelandic Internet bank that offered high interest rates before it failed along with its parent, Landsbanki.

Many voters object to the tough terms of the deal imposed by the debtor countries, not the idea of payment itself. "This result is no surprise," Prime Minister Johanna Sigurdardottir said. "Now we need to get on with the task in front of us, namely to finish the negotiations with the Dutch and the British..."

The vote could jeopardize Iceland's credit ratings, making it harder to access much-needed funding to fuel an economic recovery. Unemployment has surged since the crisis began, to about 9% in January, and inflation is running at about 7% annually, while the island's economy continues to shrink.

Icelandic authorities have recently been in talks with Britain and the Netherlands to come up with a better deal to try to avert Saturday's referendum, which was forced by the refusal of Iceland's president to agree to the so-called Icesave bill. Last-minute talks between the three countries broke down this week, despite the debtor countries saying they offered better terms for a new deal -- including a significant cut on the 5.5% interest rate in the original deal hammered out at the end of last year. The British say their "best and final offer has been turned down," but Iceland's Foreign Ministry said late Saturday it remained confident a solution acceptable to all parties can be achieved...

The [proposed] deal would require each person to pay around $135 a month for eight years -- the equivalent of a quarter of an average four-member family's salary. Locals see the deal as an unfair result of their own government's failure to curtail the excessive spending of a handful of bank executives that led the country into its current malaise...

Britain and the Netherlands have been pushing hard for repayment and there have been fears that they will take a hard-line stance on Iceland's application to join the EU and refuse to approve the start of accession talks until an Icesave deal is signed into law...

President Olafur R. Grimsson tapped into the public anger and used a rarely invoked power to refuse to sign the so-called Icesave bill after it was passed by parliament in December...Although the International Monetary Fund has never explicitly linked delivery of a $4.6 billion loan to the reaching of an Icesave deal, it is committed to Iceland repaying its international debt -- the months taken to reach the original Icesave deal were responsible for holding up the first tranche of IMF funds last year.

Good job, Grimsson, good job.

What have I become, my sweetest friend?
Everyone I know goes away in the end
You could have it all, my empire of dirt
I will let you down, I will make you hurt