Earlier this month, voters in Iceland rejected for the second time a referendum that would have implemented a plan to repay the U.K. and the Netherlands for losses stemming from the collapse of Iceland's banking industry. In an email interview, Fridrik Mar Baldursson, professor of economics at the Reykjavik University School of Business, discussed the Icesave crisis.
WPR: What is the background of the Icesave crisis?
Fridrik Mar Baldursson: Before the financial crisis, foreign branches of Landsbanki, one of Iceland's failed banks, collected deposits in Internet savings accounts in the U.K. and the Netherlands marketed under the "Icesave" brand. When Landsbanki collapsed in October 2008, authorities in those countries paid out deposit insurance to depositors in Landsbanki branches. Iceland's portion of the deposit insurance amounted to $5.9 billion at current exchange rates, or 40 percent of Iceland's 2010 GDP. The $147 million contained in the Icelandic deposit insurance fund could only cover a fraction of that.