Iceland Better Off Allowing Private Banks to Fail

Iceland’s FinanceMinistry said the country may now be weeks away froma “final resolution” to the Icesave dispute.

Iceland’s President Olafur R. Grimsson said his country is better off than Ireland thanks tothe government’s decision to allow the banks to fail two yearsago and because the krona could be devalued.

“The difference is that in Iceland we allowed the banks tofail,” Grimsson said in an interview with BloombergTelevision’s Mark Barton today. “These were private banks andwe didn’t pump money into them in order to keep them going; thestate did not shoulder the responsibility of the failed privatebanks.Ireland’s Prime Minister Brian Cowen said this week hisgovernment has discussed an 85 billion-euro ($112 billion)bailout with the European Union and International Monetary Fundafter the country’s banks threatened to bring the euro member tothe brink of bankruptcy. Iceland’s banks, which still owecreditors about $85 billion, were split to create domestic unitsneeded to keep the financial system running, while foreignliabilities remained within the failed lenders.