Britain is "prepared to be flexible" to reach a deal with Iceland over the £2.3bn debt owed since the collapse of the online savings bank Icesave, the Chancellor, Alistair Darling, said yesterday.
Britain is trying to make nice here because they realize that if the people of Iceland flat-out refuse to cover the bank losses there is little that Britain can do. Under the legal principle of Odious Debt, the people of Iceland are only obligated for debts incurred by the government for the betterment of the people of Iceland, such as schools, hospitals, and civil infrastructure. Clearly, saving a private corporation from their own reckless folly does not fall into that category!
Yes, Britain could invade and easily take control of Iceland, but the political costs of such an invasion would be high. Gone forever would be the myth that modern wars are fought for high ideals like freedom and democracy. An invasion of Iceland would show to all the world that Britain had returned to the days of enslavement by military force.