For the second time in as many years, Icelanders have rejected a public financial repayment agreement to cover the losses of a failed private Icelandic bank, Landsbanki Island, that operated an Internet only bank in Britain and the Netherlands under the name Icesave. Landsbanki Island collapsed during the height of the global financial crisis in October 2008 when its highly speculative derivative investments in the US real estate market failed.
The British and Dutch governments, in turn, were forced to reimburse nearly 400,000 people in danger of losing savings held in the Icelandic bank's subsidiary Icesave accounts. Britain and the Netherlands are demanding that the government of Iceland repay some €4 billion, roughly $5.8 billion dollars, in losses.
“The turnout of the referendum was high and close to 40% voted for and 60% voted against the law,” the Government of Iceland said in a statement. Iceland's Socialist Prime Minister, Johanna Sigurdardottir, said yesterday that Icelanders had chosen "the worst option" in rejecting the repayment plan.
Her statement added that the Icelandic government “will do all in its power to secure that the referendum outcome will not have a major impact on Iceland´s economic program and the fiscal consolidation plan which it has been pursuing.” The government warned that in light of the outcome of the referendum, there will be a “reassessment of macroeconomic assumptions,” adding that current fiscal plans will be reviewed. “A revised prognosis and budget figures will be available no later than in early May,” the government said.
The issue will now be decided by the European Free Trade Association (EFTA) Surveillance Authority court.
The first attempt at a repayment deal – specifying an interest rate of 5.5 per cent to be paid over eight years - was rejected by 93 percent of Icelandic voters in March 2010. Under this second proposal, Iceland was to pay over 30 years from 2016, with a 3.3 percent interest rate to Britain, and a 3 percent rate to the Netherlands. The deal had the backing of the Icelandic parliament, which hoped to draw a line under the dispute. But the President, Olafur Ragnar Grimsson, refused to sign it, triggering a second referendum.
The issue is expected to cloud Iceland's bid to become a full member of the European Union. Still, Icelanders are refusing to be held hostage with the no camp painting the vote as a rejection of the notion that taxpayers of Iceland must assume the liabilities created by financially imprudent private banks.
More from The Independent.