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Icesave referendum

March 6, 2010

Iceland polling stations opened Saturday for a referendum on a hugely unpopular bank collapse repayment deal for Britain and the Netherlands, with surveys and even the government saying a 'no' vote was inevitable.

Protestors march to parliament Reykjavik
Most Icelanders are expected to reject the referendum dealImage: dpa

Hundreds of demonstrators protested outside the Icelandic parliament on Saturday calling for a "no" vote in the country’s first referendum since independence from Denmark in 1944.

The protests were a public manifestation of the anger many Icelanders feel toward the bill. While polls show a majority feel the country is ethically bound to pay back some of the money lost through Icesave’s collapse, the current bill is widely seen as unreasonable.

"The people who own the banks win when they make money, but when they lose the debt is (pushed off) on society and the taxpayer," one of the voters told news agency AFP.

The protests were in part meant to draw attention to the struggles of Icelandic homeowners, many of whom have faced repossessions and evictions amid the country’s economic crisis.

"We're here to say that during the 18 months the government and the Parliament have been talking about Icesave, nothing has come up for the Icelandic homes," said Gudrun Dadda from the "Defend our Houses" group.

Doomed to fail

An Icelandic citizen casts his ballot at a polling station in Reykjavik
Negotiations have already presented better repayment deals for IcelandImage: dpa

Polls suggest nearly 80 percent of Icelanders oppose the bill, and Prime Minister Johanna Sigurdardottir has stressed that ongoing negotiations with the UK and the Netherlands were likely to produce a better deal - making the terms of the agreement being voted upon obsolete.

"The referendum is meaningless, and in my opinion it will not get us much," she told RUV television late Thursday. "I am disappointed that the first national referendum Iceland has seen is under these circumstances."

Sigurdardottir has vowed not to stand down after the expected rejection of the deal, adding that reaching an agreement quickly was a "matter of life or death for the Icelandic economy."

Icesave, an online bank that offered Dutch and British investors attractive returns, collapsed with its parent bank Landesbanki amid Iceland's 2008 financial crisis. The Dutch and British governments compensated account holders for their losses, and have demanded Iceland pay a share as well.

Defunct deal

The Icelandic parliament passed the current compensation bill on December 31, but President Olafur Ragnar Grimsson refused to sign it into law and called for a referendum instead.

The bill proposes paying about 3.9 billion euros ($5.3 billion) to Britain and the Netherlands, about a third of the country's gross domestic product, according to Jon Danielsson, a reader in finance at the London School of Economics.

"Only 300,000 people live in Iceland, so this is coming to about 50,000 euros per family" he told Deutsche Welle. "People would like a settlement that is reasonable and recognizes that all three countries are responsible for what happened."

The repayment amounts to far less for the UK and the Netherlands than it does for Iceland. And while Britain appears likely to offer a more lenient deal, Danielsson said Dutch media and politicians have become increasingly hostile to Iceland over the issue.

"Because it's a political issue in that country, a matter of principle for them, they have taken a very hardcore position on this," he said.

EU bid

The European Commission last week recommended starting European Union accession talks with Iceland, but Britain or the Netherlands are likely to block Iceland's membership until the Icesave debts are repaid.

Despite the government’s goal of EU membership, support among Icelanders has dwindled amid the Icesave debacle, according to Eirikur Bergmann, political science professor and director of the Center for European Studies at Bifroest University.

"The EU is seen to be backing the UK and the Dutch against Iceland, and therefore that has created a very negative attitude in the country against EU membership," he said.

Rejection of the bill could also have negative consequences for the country's center-left government, which has closely aligned itself with settling the Icesave issue, and opposition parties have strongly opposed a repayment plan.

"If the government collapses, any settlement of Icesave is even less likely than before," said Danielsson. "The other parties that would likely enter into the government are much more adamantly opposed to Icesave than the parties of the left."

Author: Andrew Bowen
Editor: Andreas Illmer

Iceland's Prime Minister Johanna Sigurdardottir
Prime Minister Sigurdardottir has called the referendum "meaningless"Image: AP
Icesave logo
Icesave collapsed amid the 2008 financial crisis in Iceland
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