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Icelandic credit rating under negative review

Stand and Poors, the renowned credit rating agency, has today placed the Icelandic national credit rating on negative alert after the banking collapse compensation bill was blocked by the Icelandic president. This is yet another massive blow to the Icelandic government who are still reeling from the after-effects of the current blocking of compensation payments to the UK government and the Netherlands government.

While there is great resistance within Iceland against the £3.4 billion compensation bill, it seems as though this will be by far and away the cheapest option if blocking the bill affects international trade and potentially leads to a credit rating downgrade. Even though the banking compensation bill was passed through the Icelandic parliament, as we have covered over the last few days, there is growing resentment within the country and the president is unwilling to sign it off as yet.

It will be interesting to see how the authorities in Iceland react to the latest news because in many ways they are stuck between "a rock and a hard place" with very little in the way of manoeuvrability. Any short-term reduction in the credit rating of Iceland could again impact upon the economy and cut dead any ongoing recovery in the financial sector.

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