Sunday, January 03, 2010

Iceland Strategy

A quarter of the population of Iceland have signed a petition asking to be let off for the country's debts.

They didn't seem to mind when the billions in cash were flowing into Iceland, but now they've pissed it all away they don't want to give any back. Hmm. Pretty sure that's not how it works.

Since the debt is in Euros, Iceland can't just devalue its currency and inflate away the debt (and its assets). Iceland can, of course, default on its debts - but as an isolated volcano in the North Atlantic that's not going to help much, as tariffs on (needed) trade will just claw the debt back another way. There's the option that everyone the UK and Holland would like: paying up (over a couple of decades).

Or there's a fourth option: prostitution. Get someone else to pay the debt for you, in return for... services. There are three candidates I can see there: the US, the UK, and Russia.

The UK, despite overwhelming naval superiority, lost the Cod Wars - the expansion of Icelandic fishing rights from 4nm in 1958 to 200nm in 1976. We could take that back, write off our portion of the debt, and revitalise the northern ports - Hull (Alan Johnson and John Prescott), Grimsby (Austin Mitchell since 1977) and Fleetwood. A Labour government so profligate with tax money should easily be able to afford a bung to its heartlands, and might even be able to turn a profit if fishing rights were negotiated well.

Russia doesn't have much access to the Atlantic for shipping, and its submarines are tracked by the sea-bed sonar across the GIUK Gap. Strategically and commercially, Iceland is in a prime location for access to the West. It is also a good source of geothermal power, if the Russian oil/gas oligarchs want to broaden their remits. Of course, the Russian ambassador has publicly refused to get involved.

The US, until 2006, maintained an airbase at Keflavik as Iceland was recognised as strategically important in the Cold War. Given the still-endemic fear of "commies" in the US, if Russia were to show an interest in Iceland then it would be easy to find the money to reopen the base and thereby pump enough money into the economy to pay off the debts. If there's no Russian interest, the US has already shown its intentions by closing NAS Keflavik.

I can't see the EU being interested - too many internal squabbles and no real interest. The most likely involvement would be on trade tariffs if Iceland should default on her debts. China would probably love to help, to be owed a favour, but is literally too far away.

Of course, nice though it would be for the UK to get involved and get some fish to go with our chips, we have already shot ourselves in the foot by invoking anti-terrorist legislation to seize Landsbanki assets when the problems started. So that's about as hostile a relationship as you're going to find anywhere outside of a divorce court.

I think Iceland are screwed.

- KoW

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