/ 6 March 2010

Iceland votes over foreign debts, economy at risk

Icelanders voted in a referendum on Saturday on a $5-billion deal to repay Anglo-Dutch loans, with an expected resounding “No” set to further delay foreign aid and hopes for economic recovery.

Despite the consequences of rejecting the standing deal, Icelanders are set to do just that, angry about what they see as harsh repayment terms from Britain and The Netherlands and they are now certain they can get a much better deal.

Voting began at 9am GMT and first partial results are expected shortly after polls close at 10pm GMT.

“We want to pay our debts, but we want to do it without going bankrupt,” said Steinunn Ragnarsdottir, a pianist who voted in Reykjavik City Hall with her two-year-old daughter.

Albert Olafsson, an auditor, said: “It is not fair that Icelandic taxpayers take all the blame for private bankers. This deal is simply not realistic and we can get a better one.”

No political parties are backing the “Iceave” accord agreed in late 2009, not even Prime Minister Johanna Sigurdardottir who brokered the deal. She has vowed to stay on after the referendum and said she would not cast a vote in the ballot.

The Icesave debt amounts to more than $15 000 for every one of Iceland’s 320 000 people, though most of the money is likely to be raised eventually by the sale of assets of Landsbanki, which operated “Icesave” accounts before folding late in 2008.

Britain and The Netherlands have offered easier terms, so there is no reason for voters to back the old deal.

But The Netherlands linked the negotiations on repayment with Iceland’s hopes to join the European Union.

“We have been negotiating with Iceland about the Icesave matter. I assume it will be resolved. This issue will be part of our considerations when deciding about the opening of accession negotiations with Iceland,” Foreign Minister Maxime Verhagen said on the sidelines of EU foreign ministers’ talks in Spain.

He declined to say whether The Netherlands would block Iceland’s EU accession talks or not.

New deal?
Iceland’s Finance Minister Steingrimur Sigfusson said the expected results of the referendum should not be interpreted as Iceland refusing to pay its “Icesave” obligations.

“We will honour our obligations. To maintain anything else is highly dangerous for the economy of this country,” he said.

The foreign minister told Reuters on Friday that he expected a new deal “in the next weeks, perhaps sooner”, which would limit the economic impact of the ballot.

The economy minister said a several month delay would shave two or three points off GDP in 2010, while a deputy central bank chief said the foreign aid was needed by late 2011, when Iceland refinances $1,8-billion in debt.

The ballot gives Icelanders, who have lost 30% of their disposable income since 2007, an opportunity to vent anger at Reykjavik bankers and politicians blamed for the meltdown.

In the referendum, Iceland’s 230 000 voters will be asked whether to approve a deal on paying money back to Britain and The Netherlands, after they compensated savers in their countries who had lost money in “Icesave” accounts.

Sigurdardottir said Britain and The Netherlands were holding Iceland “hostage” by linking the Icesave issue to Reykjavik receiving the next tranche of aid from the International Monetary Fund. With the cash in its coffers, Iceland would be able to open its borders to capital flows that feed investments.

The Icesave row with the two European Union countries has also rekindled anti-EU sentiment at a time when Brussels has invited Reykjavik to accession talks. Support for membership has been falling and is now opposed by more than half of Icelanders. – Reuters