Europe's Troubled IMF Borrowers |
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January 21, 2010
Amid the global financial crisis, several European countries faced serious economic distress and turned to external creditors, including the European Union and the International Monetary Fund, for emergency financing. This multilateral support relieved investors and calmed worries of full-fledged balance of payment crises. Nevertheless, these economies are not out of the woods. Political developments in countries like Iceland, Latvia, Romania and Ukraine could push the IMF loan programs off track, reigniting crisis fears.
Amid the global financial crisis, several European countries faced serious economic distress and turned to external creditors, including the European Union and the International Monetary Fund, for emergency financing. This multilateral support relieved investors and calmed worries of full-fledged balance of payment crises. Nevertheless, these economies are not out of the woods. Political developments in countries like Iceland, Latvia, Romania and Ukraine could push the IMF loan programs off track, reigniting crisis fears.
Despite Iceland's fulfillment of official loan conditions, the next disbursements of IMF and related Nordic loans are now at risk of falling through, following Icelandic President Olafur Grimsson's veto of the the so-called Icesave bill. The bill would have amended the terms of the 3.8 billion euro reimbursement to the U.K. and Netherlands as compensation for the more than 300,000 depositors who lost savings in Icesave, the Internet arm of failed Icelandic bank Landesbanki. Iceland's parliament accepted the bill in late December, but the President vetoed it on Jan. 5 under heavy public pressure. A quarter of the country's electorate had signed a petition against the bill. Immediate consequences included Fitch downgrading Iceland's sovereign debt to junk status and S&P placing it on credit watch with negative implications.
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