After voters in Iceland rejected a negotiated deal to repay Britain and the Netherlands for their losses in the wake of the Icesave collapse, Standard & Poor’s said Wednesday that the country risks having its sovereign status downgraded to the level of junk—a rating it already holds from Fitch, and which is also threatened by Moody’s.
The center-left government survived a no confidence vote on Wednesday, and its Nordic neighbors have pledged to continue lending it money as long as it adheres to its IMF obligation and continues to honor international obligations.
Reuters reported that over the weekend, Icelanders said no to a state guarantee to repay more than $5 billion to the U.K. and the Netherlands after those countries bailed out their depositors from losses incurred from the collapse of Landsbanki in 2008. The country now faces the possibility of a court-ordered settlement, as the issue is now likely to come before a European Free Trade Association (EFTA) court.
While at first Prime Minister Johanna Sigurdardottir had argued for the vote so that the matter could be settled, after citizens refused, she said instead that there was some ambiguity as to what the country should bear responsibility for.