In These New Times

A new paradigm for a post-imperial world

Iceland Rejects Icesave Debt Deal

Posted by smeddum on April 11, 2011


10th April, 2011

See also: The Icesave dispute: the view from Iceland

(Associated Press)REYKJAVIK, Iceland—Voters in Iceland have rejected a government-approved deal to repay Britain and the Netherlands $5 billion for their citizens’ deposits in the failed online bank Icesave, referendum results showed Sunday.

With about 90% of the votes counted, the “no” side had 59.1% of the votes and the “yes” side 40.9%. The result reflects Icelanders’ anger at having to pay for the excesses of their bankers, and complicates the country’s recovery from its 2008 economic collapse.

Prime Minister Johanna Sigurdardottir said the results were disappointing but she would try to prevent political and economic chaos ensuing. She said the repayment dispute would now be settled by a European trade court—which could impose harsher terms on Iceland than those rejected in Saturday’s vote.

Britain and the Netherlands said they would fight to get their money back. Dutch finance minister Jan Kees de Jager said the referendum result “is not good for Iceland and also not good for the Netherlands.”

“The time for negotiations has passed,” he said. “Iceland still has the obligation to pay us back. This is now a case for the courts.”

British Treasury minister Danny Alexander said he was disappointed “the people of Iceland have rejected what was a negotiated settlement.” Mr. Alexander told the BBC that “we have an obligation to get that money back, and we will continue to pursue that until we do.”

A tiny North Atlantic nation with a population of just 320,000, Iceland went from economic wunderkind to financial basket case almost overnight when the credit crunch took hold. Its major banks collapsed within a week in October 2008, its krona currency plummeted and protests toppled the government.

Some 340,000 British and Dutch savers had deposited more than $5 billion in Icesave’s high-interest accounts. After Icesave collapsed, British and Dutch authorities borrowed money to compensate their citizens, then turned to Iceland for repayment.

The dispute has grown acrimonious, with Britain and The Netherlands threatening to block Iceland’s bid to join the European Union unless it is resolved. Failure to agree a deal also stalled installments from a $4.6 billion loan from the International Monetary Fund.

Icelanders overwhelmingly rejected a previous deal in a referendum last year, but the government hoped a new agreement on better terms would win approval.

The Icesave debt was initially set at $5.3 billion, but backers of the rejected deal said it would cost Iceland just under 50 billion kronur ($444 million), with the recovered assets of Icesave’s parent bank, Landsbanki, covering the majority of the debt.

The deal was reached in December after long negotiations among the three countries and approved by Iceland’s parliament in January. But President Olafur Ragnar Grisson vetoed it amid strong public opposition. Many Icelanders feel they should not have to pay for the mistakes of their banking elite, who made deals around the world during a decade of boom before the credit crunch struck.

Opposition politicians called on the government to hold new elections, but Ms. Sigurdardottir said her left-of-center coalition would not resign. But she said the result “will make us rethink many issues. We will have to rethink the budget and economic policies.”

—Copyright 2011 Associated Press

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