Paying a heavy price

The people of Iceland have had their say on the Icesave deal, and their votes may have wider implications for the country.

The outcome of Saturday’s referendum in Iceland was a foregone conclusion. Its implications for the country’s economic recovery and its bid for membership of the EU are far less certain. 

Fewer than 2% of voters said ‘Yes’ to a bill to compensate the British and Dutch governments for covering the losses suffered by account-holders after the collapse in 2008 of an internet bank, Icesave, owned by one of Iceland’s largest banks, Landsbanki. But while the result appears to be a powerful rejection of the centre-left government, it will have no tangible impact: voters have simply vetoed a deal that, in effect, has already been withdrawn (see panel). Even before the referendum, the British and Dutch governments had already offered Iceland better terms; what the governments have yet to settle on are all the details of a new deal.

But the ‘No’ vote can also be seen as a rejection of the very principle underlying the Icesave agreement: the notion that Iceland’s taxpayers should cover shortfalls in the country’s deposit insurance fund and, hence, the losses incurred by British and Dutch depositors who lost money when Icesave collapsed.

“This is not a debt owed by Iceland” but by Landsbanki, says Hannes Hólmsteinn Gissurarson, a professor of politics at the University of Iceland and a former member of the board of Iceland’s central bank. Rather than saddle Icelanders with debt amounting to half the country’s economy, the governments involved should focus on maximising the remaining assets of Landsbanki, he suggests.

Honouring obligations

But the Icelandic government has not questioned the principle, and its plan to repay the British and Dutch governments remains unaffected by the referendum. Steingrímur J. Sigfússon, Iceland’s finance minister, has said that the Icelandic government aims to conclude negotiations on the improved agreement before general elections in the Netherlands (in June) and in the UK (probably in May).

“We want to be perfectly clear that a ‘No’ vote does not mean we are refusing to pay,” Sigfússon said. “We will honour our obligations. To maintain anything else is highly dangerous for the economy of this country.”

This was presumably an allusion to billions of euros in loans from Iceland’s Nordic neighbours and the International Monetary Fund (IMF) that will remain blocked until the Icesave matter is resolved. Even without delays in receiving the loans and the foreign investment that they could facilitate, the economy is forecast to contract by 3.4% this year. The IMF’s role is questioned in Iceland – Hólmsteinn Gissurarson says it is “outrageous” for the IMF to act “as a bounty collector for the British”.

Fact File

An unusual first referendum

This was Iceland’s first referendum in its 66 years as a republic, but the vote was perhaps also unique for another reason: is there any other democracy in which the prime minister has not turned up on polling day?

A new and better deal with the UK and the Netherlands was in the pipeline, Jóhanna Sigurðardóttir and the finance minister, Steingrímur J. Sigfússon, had said. A plebiscite was therefore redundant. So neither of them voted. Nor had the government done much to advertise the referendum. Even a week before, it was uncertain whether the ballot would be held; parliament concluded that it had to be.

Unsurprisingly, turnout was considerably lower than usual, at around 63%. Younger people were particularly visible, but the attitudes were the same across the age spectrum. “Why should I pay the debts of a bank?” asked a 57-year-old man. “I wasn’t invited to the party and now they are sending me the bill for it.”

“By saying ‘No’, we are…not refusing to pay,” said one young woman. “We are only saying we shall not bear all the responsibility.”

Similar sentiments were expressed on the placards carried by the roughly 1,000 people who marched down Reykjavík’s main shopping street.

But the protest was both smaller and quieter than those in 2008 and 2009, when many thousands of Icelanders turned out regularly to bang their pots and pans in an ultimately successful call for the government to leave office.

An underwhelming campaign yielded an overwhelming result: almost 94% voted against the deal.

Perhaps the vote was not as irrelevant as Sigurðardóttir had argued. Certainly, the man who called the referendum, Ólafur Ragnar Grímsson, felt it contained an important message. At the end of the day, he emerged to pose the question that made the referendum meaningful for many. “The big question in my mind now is: What is Gordon Brown going to do?” Grímsson said.

The same question explains why some in the team renegotiating the Icesave deal had reportedly argued that a referendum should be held. A clear ‘No’ would, they contended, help in negotiations with UK Prime Minister Brown and his Dutch counterpart, Jan Peter Balkenende.

It is unclear if better terms would be enough; around 50% want a referendum on any Icesave deal and many might say ‘No’ again.

At this point, the clearest loser is the government, and not just because of the result.

A 21-year-old woman was furious at Sigurdardóttir’s decision not to vote: “She has talked about national votes for years and now, because she does not agree, she has given democracy the finger.”

The opposition now wants an all-party government of national unity. Certainly, many feel this government has not lived up to its mandate.

“There was a ‘pots and pans’ revolution here and we elected a new government,” said one protestor outside the parliament. “But this government has not done what it was elected to do: it has not defended our homes and our families.”
Bjarni Brynjólfsson

What did Icelanders vote down?

The referendum is the latest political fall-out of the collapse of Iceland’s banking sector in 2008. 

When the sector collapsed, account-holders of Icesave, an offshore unit of the Icelandic bank Landsbanki, found that Iceland’s Deposit and Investor Guarantee Fund was too small to cover their losses. Many of those account-holders were British and Dutch. The British and Dutch governments stepped in, lending the fund money to compensate account-holders.

Last June, the Icelandic government agreed to the principle that it should re-pay London and The Hague for these loans. The cost, though, is enormous – around €3.9 billion, or roughly half of Iceland’s gross domestic product. After one of the most protracted debates in its history, Iceland’s parliament last August adopted a law implementing the agreement, which was approved by Ólafur Ragnar Grímsson, Iceland’s president.

However, lawmakers attached a number of conditions that were not accepted by the British and Dutch governments. The government then submitted a revised bill that was narrowly passed by the Althingi in (Iceland’s parliament) in December 2009 in the face of fierce opposition. Grímsson refused to sign it into law, triggering Saturday’s referendum. The referendum was therefore on the December 2009 bill, and does not formally affect the August 2009 law.

Since then, London and The Hague have offered Iceland better terms. That offer has yet to be turned into a formal agreement. However, it did mean that the referendum lost much of its meaning: Icelanders were being asked whether they accepted a politically defunct deal containing worse terms than the Dutch and British governments are currently offering.

Correction: This explanation of the vote has been adjusted to make clear that the law passed in August 2009 was not at issue in the referendum.

The better conditions offered by the UK and the Netherlands in recent weeks suggest that queasiness about the anger of the Icelandic public, reflected in the referendum, has had an effect. The passage of time could have a similar effect – provided the government uses its position to the fullest.

But its political capacity to act may be limited. Jóhanna Sigurðardóttir, the prime minister, said that the vote had “no impact on the life of the government”, but the government was weak before the poll and is weaker still today. Tensions within the uneasy governing coalition of Sigurðardóttir’s social democrats and Sigfússon’s Left-Green Movement are deepening. Some observers suggest that it might break apart over the issue.

The Icesave matter has pushed the question of Iceland’s bid for EU membership into the background. Last week, the European Commission recommended that accession talks should begin. It is unclear whether the British and Dutch governments would block such talks. As a diplomat pointed out, they have close to 70 opportunities to block Iceland’s membership negotiations – before they start, at the very end, and at the opening and closing of each of the 33 policy areas into which accession talks are divided.

But at a time when support for membership is falling in Iceland and the main pro-EU force, the social democrats, is beleagured, that threat might no longer work.

Click Here: cheap nrl jerseys