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Repayment rejection

April 10, 2011

Iceland's voters have refused to pay back Britain and the Netherlands, who compensated their own citizens when the Icelandic bank Icesave went under in 2008. The vote could mean great insecurity for the island nation.

Vote being cast in Iceland
Voters rejected a repayment plan - as they did last yearImage: picture alliance/Photoshot

Icelandic voters appeared to have rejected for a second time a plan to compensate Britain and the Netherlands for the 2008 collapse of Icesave bank, according to partial referendum results made available Sunday.

Iceland's 230,000 eligible voters were asked to decide whether to repay Britain and the Netherlands the 3.9 billion euros ($5.6 billion) the two countries had spent on compensating their citizens who lost money when the online Icelandic bank went under in the 2008 financial crisis.

With around 85,000 votes in the referendum counted, official figures showed 58 percent had voted against the accord compared with 42 percent in favor.

"The worst option was chosen. The vote has split the nation in two," Prime Minister Johanna Sigurdardottir told state television.

The prime minister, who had predicted a no vote would cause economic uncertainty for at least one to two years, did not say whether the government planned to resign.

Johanna Sigurdardottir
Sigurdardottir predicted a 'no' vote would plunge Iceland into uncertaintyImage: AP

"We must do all we can to prevent political and economic chaos as a result of this outcome," she said.

Going to court

Iceland's lawmakers in February backed the payment plan, which would have seen Iceland gradually repay the debt until 2046 with a 3.0 percent interest rate for the 1.3 billion euros it owes the Netherlands and at a 3.3 percent rate for the remainder to Britain. But President Olafur Ragnar Grimsson refused to sign the parliament's deal, leading to the referendum.

The plan would have called on Iceland's 320,000 citizens pay an average 12,000 euros per person before interest.

The 'no' camp campaigned against the plan, arguing that the common people had no responsibility to pay for a private bank.

Voters had already rejected a previous plan in a March 2010 referendum.

Now the issue may go to a European court rather than be passed through further bilateral negotiations - a solution that may take several years and that some economists say would be much costlier.

'End of the road'

"It is clear that we have reached the end of the negotiation road," Finance Minister Steingrimur Sigfusson told state television.

Sigurdardottir said Iceland would now defend its case before the court of the European trade body overseeing Iceland's cooperation with the European Union, the EFTA Surveillance Authority (ESA).

Icelandic crowns
The Icelandic krona remains in dangerImage: Susanne Henn

Lawmakers had hoped that a quicker resolution to the Icesave issue would help Iceland get new funding on the financial market - a condition for the country to remove controls on capital flows it imposed in 2008 to stabilize its plummeting currency.

Author: David Levitz (AFP, Reuters)

Editor: Sean Sinico