Woolnough: Iceland showcases dangers ahead for Europe

IS ICELAND A TEST CASE FOR EUROPE?

Richard Woolnough at M&G warns Iceland's rejection of proposals to compensate the UK and Dutch governments for the collapse of Icesave could have far reaching implications for the eurozone.

Last weekend the voters of Iceland said no to honouring claims made against their nation by the British and Dutch governments. These claims originate from the failure of "IceSave" saving accounts. Many depositors in these accounts were based in the UK and Holland. In the wake of the funding crisis the UK and Dutch governments covered the losses of their respective citizens. The Icelandics are faced with a dilemma. Do they choose the cheap short-term option of walking away from their debt, or the expensive short-term option of paying up? If they choose the latter, then Iceland will probab...