Resounding "No" expected in Iceland referendum

A page from icesave online bank is seen on a computer screen, in London October 7, 2008.

REYKJAVIK (Reuters) - Icelanders vote in a referendum on Saturday on a $5 billion deal to repay Anglo-Dutch loans, with an expected resounding "No" set to further delay foreign aid and hopes for economic recovery.

Despite the consequences of rejecting the standing deal, Icelanders are angry about what they see as harsh repayment terms from Britain and the Netherlands and they are now certain they can get a much better deal.

The referendum looks like a one-way bet with no political parties backing the deal agreed in late 2009, not even Prime Minister Johanna Sigurdardottir who brokered the agreement.

Sigurdardottir has vowed to stay on after the near certain referendum defeat and said that a quick solution to the Icesave saga was "a matter of life or death for the Icelandic economy."

"The bill is literally an 'orphaned' law since there is nobody fighting for it," she told reporters on Friday, adding that "it is quite clear it will be rejected."

Britain and the Netherlands have offered easier terms, so there is no reason for voters to back the old deal.

"It's of utmost importance that we don't over-interpret whatever message comes out of this. We want to be perfectly clear that a 'No' vote does not mean we are refusing to pay," Finance Minister Steingrimur Sigfusson told reporters.

"We will honor our obligations. To maintain anything else is highly dangerous for the economy of this country."

Foreign Minister Ossur Skarphethinsson told Reuters that he expected a new Icesave deal "in the next weeks, perhaps sooner.

The economy minister said a several month delay would shave 2-3 points off GDP in 2010.

VENTING ANGER

The ballot gives Icelanders, who have lost 30 percent of their disposable income since 2007, an opportunity to vent anger at the bankers and politicians in Reykjavik who they blame for the island's meltdown.

In the referendum, Iceland's 230,000 voters will be asked whether to approve a deal on paying money back to Britain and the Netherlands, after they compensated savers in their countries who had lost money in Icesave accounts.

Sigurdardottir said Britain and the Netherlands were holding Iceland "hostage" by linking the Icesave issue to Reykjavik receiving the next tranche of aid from the International Monetary Fund. With the cash in its coffers, Iceland would be able to open its borders to capital flows that feed investments.

The Icesave debt amounts to more than $15,000 for every one of Iceland's 320,000 people, though most of the money is likely to be raised eventually by the sale of assets of Landsbanki, which operated Icesave accounts before folding late in 2008.

The Icesave row with the two European Union countries has also rekindled anti-EU sentiment at a time when Brussels has invited Reykjavik to begin accession negotiations.

Support for membership has been falling in past months and is now opposed by more than half of Icelanders, nearly twice the level seen just after the 2008 collapse.