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Referendum reaction

April 11, 2011

Britain and the Netherlands have promised to take legal action against Iceland after the country's electorate opposed a deal to repay banking debts. The Icelandic government says it remains prepared to refund the money.

A judge's hammer and law book
A legal solution is likely to prove more costly for IcelandImage: Bilderbox

The British and Dutch governments on Sunday warned of legal action after Icelandic voters rejected a plan to repay both countries for losses sustained in a banking collapse.

In a referendum Saturday, some 60 percent of the Icelandic electorate opposed the negotiated deal to refund 3.9 billion euros ($5.6 billion) in losses incurred following the collapse of the online bank Icesave.

"This is not good for Iceland, nor for the Netherlands," said Dutch Finance Minister Jan Kees de Jager. "The time for negotiation is over."

"It now looks like this process will end up in the courts," Danny Alexander, British Chief Secretary to the Treasury, told BBC television.

Despite the rejection, Iceland's government attempted to reassure Britain and the Netherlands on Sunday that there were sufficient funds to repay the debt.

Reykjavik saddled with bank bill

Both countries' governments reimbursed investors who lost money with the bank when it collapsed in 2008, and both claim Iceland should pick up the tab.

A voter casts his ballot on Saturday
About 1 in 10 voters rejected the proposed repayment planImage: picture alliance/Photoshot

The court route is likely to prove much costlier for Iceland. Reykjavik hopes most of the debt can still be repaid by the bankrupt estate of Landsbanki, the company that operated Icesave, which is due to make some repayments later this year.

"The Icelandic state has absolutely no problem in repaying its debts," Icelandic Finance Minister Steingrimur Sigfusson told a press conference.

"Iceland's reserves are more than enough to cover all the payments in the coming years," he added.

The matter could now be settled by the court of the European Free Trade Association, the body responsible for overseeing Iceland's trade links with the European Union. Sigfusson said Iceland would cooperate legally to find a "rapid solution," but that the procedure could take time.

"My estimate is that the process will take a year, a year and a half at least," said Sigfusson.

Customers make withdrawals at a Landsbanski ATM
Icelandic citizens face a costly bill for the bank collapseImage: AP

Counting the cost to individuals

With 70 percent of ballots counted on Sunday, the "no" vote led with 57.7 percent against a "yes" vote of 42.3 percent. The "no" campaign emphasized throughout that the deal would cost each of the island's 320,000 citizens 12,000 euros - before interest.

In spite of the defeat, the center-left coalition government declared in a statement that it would not resign.

"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," the statement read.

Prime Minister Johanna Sigurdardottir has said the result was a "shock" for parliament, which approved the deal by a 70 percent majority. Acceptance of the negotiated refund has been seen as crucial for the country's hopes of joining the European Union.

Author: Richard Connor (dpa, Reuters)
Editor: Martin Kuebler