Tag: policy harmonisation

No, I’m not talking about the UK suffering from snow and becoming a land of ice! Towards the end of 2008, Icelandic banks hit the headlines and for all the wrong reasons. Icelandic banks were key lenders to some of the key businesses and entrepreneurs in the UK and an online bank held the accounts of over 150,000 Brits. The Icelandic government tried to rescue their banking sector, but with little success and we saw it collapse, sending shockwaves through UK banks. The UK economy lost millions and this contributed to the worsening financial system within our shores.

Iceland’s President has been under serious pressure, from the UK and Dutch governments on one side and from the Icelandic people on the other. A quarter of voters in Iceland have signed a petition against plans to repay money lost by foreigners when an Icelandic online bank collapsed. When the Icesave scheme collapsed in 2008, British and Dutch savers lost approximately £3.4bn (€3.8bn). Although they were compensated by the British and Dutch governments, this still meant that the taxpayers in these countries were owed the money by Iceland.

Iceland’s Parliament approved the plans to reimburse the money, but the people are encouraging their President to veto the bill. They argue that repaying this money will cost the Icelandic taxpayers: the compensation is some 12,000 euros for each of Iceland’s residents. Campaigners say that the Icelandic people are being forced to pay for the mistakes of the banks. Whilst UK taxpayers lost out, the Icelandic people’s arguments have something of a déjà-vu about them: after all it wasn’t long ago that the UK people were asking why we should have to suffer from higher taxes and future cuts in government spending to bail out the banks, when it wasn’t our fault that they collapsed in the first place. The following articles consider this issue.

Icelandic bank with British savers’ money enters crisis talks Telegraph, Rowena Mason (4/10/08)
Town Hall’s £830m Iceland shortfall This is Money, Daniel Martin (6/1/10)
Iceland leader vetoes bank repayments bill BBC News (5/1/10)
iIceland blocks repayment of £2.3bn to Britain Times Online, Robert Lindsay (5/1/10)
Iceland petition against pay-out over Icesave collapse BBC News (2/1/10)
Iceland’s President under pressure over Icesave Telegraph, Angela Monaghan (3/1/10)
Peston’s Picks: We’re all Icelanders now BBC News (7/1/10)
Iceland President says country will pay UK government BBC News (7/1/10)


  1. For the Icelandic people, what are the arguments (a) for and (b) against repaying money owed to the UK and the Netherlands?
  2. For the British and Dutch people, what are the arguments (a) for and (b) against repayment?
  3. How will this repayment (or lack thereof) affect the recovery of the British economy?
  4. Will the repayment of this money adversely affect the Icelandic economy? Explain your answer. Think about tax cuts and the effect on consumer incomes.
  5. Why is this a key example of international policy interdependence?

The International Monetary Fund is made up of 186 countries, which together strive for global monetary co-operation, financial stability, the facilitation of international trade, as well as promoting high employment and sustainable economic growth. At the same time, the IMF and the World Bank also aim to reduce poverty around the world. Some task! – especially with the current financial crisis putting strains on even the richest of countries. In its annual meeting on the 2nd October 2009, the ‘rescue’ of more than 12 governments has already been organised by the IMF.

But it is not just countries who are suffering. The World Bank has said that it could run out of money within the next year and the IMF’s Managing Director has also suggested that it will run out of money for its low-income-country loan facility, which loans money to low-income countries at zero interest rates. However, France and Britain have stepped up with a $4 billion allocation to the IMF to help poorer countries, which may lead to other countries doing the same.

Meanwhile, Alistair Darling continues to fight to keep Britain’s seat at the IMF, as some suggest that Europe has too many seats and should give them up to make room for growing economies. This comes at a time when Britain is also facing the prospect of being side-lined from a new group of economic superpowers that would include the US, Japan, China and the Eurozone countries. The following articles consider the role of the IMF and the WB, as the global economy continues to face financial turmoil.

Doubts remain over global power of IMF Financial Times, Alan Beattie (3/10/09)
Pledge for more IMF help for poor BBC News (4/10/09)
World Bank could run out of money ‘within 12 months’ Telegraph, Edmund Conway (2/10/09)
Will tough new G20 measures work? BBC News (26/9/09)
France, UK to loan IMF$4 billion for poor nations Bloomberg, Sandrine Rastello (3/10/09)
Darling rejects call for UK to lose permanent seat on IMF Guardian, Larry Elliot (4/10/09)
Alistair Darling battles to keep UK on the world’s economic top table Telegraph, Edmund Conway(3/10/09)

See also:
IMF Homepage
World Bank Homepage


  1. How do the roles of the IMF, the World Bank, the G7 and the G20 differ and overlap? Do we need all of them?
  2. What are the arguments for less European representation at the IMF? How may this affect decision-making?
  3. If the G4 does go ahead, with the Eurozone as one of its members, why will the UK be sidelined?
  4. It is often mentioned that all countries are interdependent, but what do we mean by international policy harmonisation and why is it desirable?
  5. The BBC News article and the Telegraph article talk about money shortages at the IMF and the WB. What does this mean for the poorer countries and also for the UK and France which have allocated $4 billion to the IMF?