Icelanders Reject Globalist Banker Payoff Bill in Referendum

Icelanders Reject Icesave Bill in Referendum, Results Show
By Omar R. Valdimarsson
BusinessWeek
Mar. 06, 2010

March 7 (Bloomberg) -- Icelanders rejected by a massive majority a bill that would saddle each citizen with $16,400 of debt in protest at U.K. and Dutch demands that they cover losses triggered by the failure of a private bank.

Ninety-three percent voted against the so-called Icesave bill, according to preliminary results on national broadcaster RUV. Final results will be published this morning.

The bill would have obliged the island to take on $5.3 billion, or 45 percent of last year’s economic output, in loans from the U.K. and the Netherlands to compensate the two countries for depositor losses stemming from the collapse of Landsbanki Islands hf more than a year ago. The island’s political leaders say they’ve already moved on to talks over a new accord.

“The government’s survival doesn’t rest with this Icesave vote,” Prime Minister Johanna Sigurdardottir told RUV after the preliminary count was announced. “The government coalition remains solid,” Finance Minister Steingrimur Sigfusson told RUV.

Failure to reach an agreement on the bill has left Iceland’s International Monetary Fund-led loan in limbo and prompted Fitch Ratings to cut its credit grade to junk. Moody’s Investors Service and Standard & Poor’s have signaled they may follow suit if no settlement is reached.

‘Obsolete’

Iceland’s leaders are trying to negotiate a new deal with the U.K. and the Dutch, making the bill in yesterday’s vote “obsolete,” Sigurdardottir said on March 4.

“The results of the Icesave referendum are an internal matter for Iceland,” said acting Dutch Finance Minister Jan Kees de Jager in a statement posted on the Internet last night. He said he is “disappointed” that the agreement hasn’t yet come into effect.

He’s written a letter to Sigfusson together with the U.K., committing them to find a solution that is in line with international standards, while realizing that the Icelandic government will now need time to “reflect” on the recent events.

“This referendum is very peculiar and without any parallel in Iceland’s history,” said Gunnar Helgi Kristinsson, a professor of political science at the University of Iceland, in an interview.

“Ordinary people, farmers and fishermen, taxpayers, doctors, nurses, teachers, are being asked to shoulder through their taxes a burden that was created by irresponsible greedy bankers,” said President Olafur R. Grimsson, whose rejection of the bill resulted in the plebiscite, in a Bloomberg Television interview on March 5.

Broader Backing

The Icesave deal passed through parliament with a 33 to 30 vote majority. Grimsson blocked it after receiving a petition from a quarter of the population urging him to do so. The government has said it’s determined any new deal must have broader political backing to avoid meeting a similar fate.

Icelanders used the referendum to express their outrage at being asked to take on the obligations of bankers who allowed the island’s financial system to create a debt burden more than 10 times the size of the economy.

The nation’s three biggest banks, which were placed under state control in October 2008, had enjoyed a decade of market freedoms following the government’s privatizations through the end of the 1990s and the beginning of this decade.

Protesters have gathered every week, with regular numbers swelling to about 2,000, according to police estimates. The last time the island saw demonstrations on a similar scale was before the government of former Prime Minister Geir Haarde was toppled.

Icelanders have thrown red paint over house facades and cars of key employees at the failed banks, Kaupthing Bank hf, Landsbanki and Glitnir Bank hf, to vent their anger. The government has appointed a special commission to investigate financial malpractice and has identified more than 20 cases that will result in prosecution.

Economic Impact

The island’s economy shrank an annual 9.1 percent in the fourth quarter of last year, the statistics office said on March 5, and contracted 6.5 percent in 2009 as a whole.

Household debt with major credit institutions has doubled in the past five years and reached about 1.8 trillion kronur ($14 billion) in 2009, compared with the island’s $12 billion gross domestic product, according to the central bank.

Icelanders, the world’s fifth-richest per capita as recently as 2007, ended 2009 18 percent poorer and will see their disposable incomes decline a further 10 percent this year, the central bank estimates.

Grimsson, who has described his decision to put the depositor bill to a referendum as the “pinnacle of democracy,” says he’s not concerned about the economic fallout of his decision.

“The referendum has drawn back the curtain and people see on the stage the matter in a new perspective,” he said in an interview. “That has strengthened our position and our cause.”

--With assistance from Ryan Chilcote in Reykjavik and Celeste Perri in Amsterdam. Editors: Tasneem Brogger, Chris Kirkham.