Iceland voters reject deal to repay billions to UK, Dutch

Monday, April 11, 2011

Coat of arms of Iceland

Results from Iceland's referendum on Saturday show that Icelanders overwhelmingly voted "no" on a government-approved plan to repay Britain and the Netherlands billions of euros lost in Iceland's 2008 bank crash.

In Sunday's final results almost 60 percent rejected the deal, with the voting turnout high, the government reported. This is the second repayment plan rejected by the voters; the first one was rejected by 93 percent last year.

British and Dutch investors lost 3.9 billion euros ($5.6 billion) in Icesave, an Icelandic internet bank that failed in Iceland's economic collapse of 2008. The two governments reimbursed their citizens and are now seeking repayment from Iceland. Iceland compensated its own citizens for losses but not overseas depositors.

The latest repayment plan took two years to work out between Britain, the Netherlands and Iceland and was passed by a 70 percent majority of the Icelandic parliament. It provided for a lower interest rate and a longer repayment period, conditions much more beneficial to Iceland than the previous plan. The cost would average about 12,000 euros before interest per Icelander. Those against the referendum felt that amount was a heavy burden on Iceland and the taxpayer was not legally responsible for a private bank's losses.

In a press conference, Iceland's Finance Minister Steingrimur Sigfusson said, "I think it's very hard to interpret this in any other way than the fact that the Icelandic people are not prepared to accept payments or shoulder the burden unless there is a clear legal obligation to do so." He said that Iceland can pay its debts and the country has the reserves to cover future payments.

But Iceland's Prime Minister Jóhanna Sigurðardóttir said the referendum results were disappointing and have divided the country. She considers acceptance of the payment plan essential to Iceland's attempts to join the European Union (EU). Under an EU directive, Britain and the Netherlands are owed compensation by Iceland. The International Monetary Fund's 2009 loan to Iceland of $2.1 billion contained the provision that Iceland repay the British and Dutch governments. Britain and the Netherlands are in a position to block Iceland's application for European Union membership.

The Netherlands and Britain said the opportunity to negotiate has passed and the dispute will end up before the European Free Trade Association, the court for the European Economic Area.

British Chief Secretary to the Treasury Danny Alexander said that the British government had fulfilled its obligation to its citizens to compensate them for their losses. "We have an obligation now to get that money back, and we will continue to pursue that until we do. ... We have a difficult financial position as a country and this money would help."

Dutch Finance Minister Jan Kees de Jager said, "Iceland remains obliged to repay. The issue is now for the courts to decide."

The increasingly bitter dispute must be resolved for Iceland to have access to financial markets essential to fund its recovery, experts say, and resolution is essential for Iceland's attempts to become an EU member.