Iceland again rejects debt deal

REYKJAVIK Sun Apr 10, 2011 11:18am EDT

Iceland's Prime Minister Johanna Sigurdardottir (L) casts her vote in the Icesave referendum in Reykjavik April 9, 2011. REUTERS/Ingolfur Juliusson

Iceland's Prime Minister Johanna Sigurdardottir (L) casts her vote in the Icesave referendum in Reykjavik April 9, 2011.

Credit: Reuters/Ingolfur Juliusson

REYKJAVIK (Reuters) - Iceland faces more economic uncertainty and a drawn-out European court case after its voters rejected for a second time a plan to repay $5 billion to Britain and the Netherlands from a bank crash.

The British and Dutch governments voiced disappointment with the result of Saturday's referendum, in which almost 60 percent of voters opposed the repayment deal.

"We must do all we can to prevent political and economic chaos as a result of this outcome," Prime Minister Johanna Sigurdardottir told state television.

The issue will now be settled by the court of the EFTA Surveillance Authority (ESA), the European trade body overseeing Iceland's cooperation with the European Union.

"My estimate is that the process will take a year, a year and a half at least, Finance Minister Steingrimur Sigfusson told a news conference.

The debt was incurred when Britain and the Netherlands compensated their nationals who lost savings in online "Icesave" accounts owned by Landsbanki, one of three overextended Icelandic banks that collapsed in late 2008, triggering an economic meltdown in the country of 320,000 people.

Economists have said failure to resolve the issue means Iceland faces delays ending currency controls, boosting investment and returning to financial markets for funding.

But the center-left coalition government said it would not resign despite the defeat.

"The government will emphasize maintaining economic and financial stability in Iceland and continuing along the path of reconstruction which it began following the economic collapse of 2008," it said in a statement.

It said a fresh round of talks on further funding from the International Monetary Fund, which led a bailout for the island, would be delayed several weeks, but that it had enough foreign exchange reserves to cover debts maturing this year and next.

COURT CASE AHEAD

The proposed deal at issue in Saturday's vote set a clear timetable for repaying the Dutch and the British, including interest. But voters rejected the idea that taxpayers should foot the bill for what they see as bankers' irresponsibility.

"I know this will probably hurt us internationally, but it is worth taking a stance," Thorgerdun Asgeirsdottir, a 28-year-old barista, said after casting a "no" vote.

Dutch Finance Minister Jan Kees de Jager said: "This is not good for Iceland, nor for the Netherlands. The time for negotiations is over. Iceland remains obliged to repay. The issue is now for the courts to decide."

Economists have said the court route could be much costlier.

The government still hopes most of the debt will eventually be paid back from the estate of the bankrupt Landsbanki. Ratings agencies were following the vote closely. Moody's had said it might lower Iceland's rating in case of a 'no'.

Standard & Poor's analyst Eileen Zhang said a 'no' vote "might possibly result in a lengthy legal process and further uncertainties regarding the ultimate fiscal cost."

(Additional reporting by Sara Webb in Amsterdam and Avril Ormsby in London; Editing by Mark Trevelyan)

($1=113.31 Iceland Krona)

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Comments (8)
Eideard wrote:
If and when Iceland tells the banks and bankers of Europe, the politicians of the EU to drop dead – you do understand don’t you the people of Iceland are thoroughly prepared to go it alone.

There will always be customers for their products, especially foodstuffs.

Faced with a choice of how to be comparatively poor, they will choose a bootstrap economy that they control themselves – instead of the EU or IMF.

Given that choice, I’ll bet the people of Ireland would have chosen the same as well.

Apr 10, 2011 1:02am EDT  --  Report as abuse
Hulda wrote:
The regulators in Iceland did nothing to stop the Icesave accounts.
The regulators in England and Holland did nothing to stop the Icesave accounts.
All of them had authority to do so, and knew things were getting out of hand.

We the people of Iceland did not know anything about this. We were told all the time that everything was fine.

The UK and Dutch governments decided to reimburse depositors in their countries, then they went to the Icelandic government, referred to EU regulations and claimed that the one who should pay for this was the Icelandic citizen.

It is very sad that people loose their live savings. I lost mine here in Iceland. I did not put money into high-interest accounts. Did the other thing, put my money into an apartment.

Too many international lawyers and highly respected people in the field of finance and politics have stepped forward and told us the Icelandic Nation that the Icesave claim from Holland and England has no sturdy grounds in the laws. The matter should be put to the courts. That is why I voted no.

By the way: The people that got us into this mess are probably living next doors to you in England. They took the money and fled to better places.

Apr 10, 2011 5:22am EDT  --  Report as abuse
The people of Iceland have done well to reject this extortionist act. Government and political / financial pressures will be brought to bear against the people of this country that did nothing wrong and were in no way complicit in the despicable acts of the banking industry that brought on this disaster. Instead of chasing after them, the foreign governments involved should be tracking down the people directly responsible, seizing their assets and prosecuting them. Trying to make accountable those that had no involvement and at the same time leaving those responsible with no accountability is a perversion of justice and a defrauding of the people you are supposed to be protecting. I look forward to the day when I am able to visit Iceland to directly support the people of this wonderful country.

Apr 10, 2011 7:54am EDT  --  Report as abuse
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