wmlro.com: Iceland president rejects plan to refund UK and NL

When the Icelandic parliament at last passed a Bill to repay the estimated 4,000 million euros that the UK and the Netherlands had laid out to their domestic depositors in Icesave, the collapsed Icelandic bank, there was a general sigh of relief.

Except from many in Iceland.

For they have to find the money - and Iceland hasn't any.

There was a complex deal done: the UK and the Netherlands technically loaned to Iceland the money that was to be paid to depositors in failed banks, in effect re-circulating bank guarantees.

Iceland, in the grip of every economic horror known to man, and scuttling around the world trying to find the money to last a few days more, the deal was welcome. It was not, however, necessarily very well thought out.

Now, Icelanders are not so sure that it was a good idea: why, they ask, should the foreign depositors not have been covered by the foreign guarantees; why should the Icelandic government be forced to stump up the money for banks supervised by foreign regulators who dropped the ball?

The problem here is to be found in EU banking law: Iceland is not a full member of the EU but it does share some laws and benefits. Amongst them is "passporting" of its banks into EU countries. This allows regulators to apply a light-touch to passported banks, and requires home regulators to properly supervise overseas operations.

The UK and the Netherlands said, simply, the liabilities should go with the responsibilities, and Iceland was supposed to properly supervise its banks wherever they operate in the EU.

Now Olafur Grimsson, the President of Iceland, is having second thoughts: he is talking of a possible referendum to annul the previous agreement.

Iceland is still in a financial mess: it is trying to do a deal with the IMF to get what amounts to an operating budget.

A statement by the IMF appears to remove pressure on Iceland to make the repayment: "The IMF will evaluate the situation with the Icelandic authorities and consult with the other countries providing financing for the programme." IMF mission chief to Iceland Mark Flanagan said in the statement.

That causes Brown grief in more than one way: he has long hankered after the top job at the IMF. That the IMF would not support his claims without question will show him that he is not held in the high regard that he thinks he is.