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Iceland Says "NO" – Implications?

Iceland, by referendum vote, has decided to not pay back $5 billion loaned to it by the British and Netherlands governments. This sparks two concerns without immediate answers:

1. Can the government legally shirk its debts by using the “will of the people?”

Can the government use a referendum vote, and then cite that vote, for its inability to pay back foreign debt? This debt, originally owed to the UK and the Netherlands for the now infamous Iceland bank failure, had been reaffirmed for payment when Iceland agreed to the payment terms encompassed withing the from the IMF.

This sets off the first legal question: Whether Iceland is already breaking its loan agreements with the IMF (even if the agreement is for an obligation to other sovereign nations)? Can Iceland use this “will of the people” tactic to shirk responsibilities? Couldn’t the U.S., or any other nation for that matter, shirk international law by using a referendum? Thus, the will of the people could disavow any legal debt by the government. This could set controversial policy and precedent if the IMF, UK, or the Netherlands choose to let this legal route to forcing payment.

2- What then are the implications for US-Chinese debt?

Could the U.S. defend itself from a “foreign financial” attack, by using a referendum? The U.S. “persuaded” London to leave the Suez Canal, by just pressuring to sell foreign debt (which would have damaged its currency). What about when payment comes due? Can countries shirk their responsibilities with out any consequences? (barring economical deflation of their fiat currency as China has done) Dubai seems to be setting the precedent on how to respond to debt being owed. Its solution is to “restructure its debt, not its obligation.” How do the the banks and companies react? Well, they are just corporations– the leverage they have over a sovereign nation, like Dubai, is microscopic compared to that of another corporation. A corporation you can liquidate. Dubai? Its sand is as worthless as the commercial real estate debt it’s restructuring.

With no answer and bad precedents being set, where do the countries security implications, in regards to safekeeping its currency, conflict with its obligations (as Lendee) to another nations rights (as lender). And when can we use this business relationship in furtherance of political goals and national security defense? As it seems, nations are fine without giving a definitive answer.


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