Serpo
11th April 2011, 08:16 PM
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By CHARLES FORELLE
For the second time, Icelanders voted down a deal to repay Britain and the Netherlands billions of euros lost in the island nation's 2008 financial collapse—at once a bold popular rejection of the notion that taxpayers must bear the burden for bankers' woes and a risky outcome that will complicate Iceland's efforts to rejoin global markets.
People celebrate while watching the results in a referendum on whether to approve a renegotiated deal to compensate Britain and The Netherlands over the 2008 collapse of Icesave bank at a bar in Reykjavik on Sunday.
The money in question, about €4 billion ($5.8 billion), was placed by British and Dutch depositors in an Icelandic Internet bank called Icesave, and then lost when Icesave's operator, Landsbanki Islands, collapsed along with the rest of Iceland's big banks in October 2008.
Nearly 60% of 175,000 voters rejected a plan to compensate the British and the Dutch governments, who had stepped in to pay their own Icesave depositors when Iceland's deposit-insurance scheme ran out of money.
The deal was the result of months of negotiation that saw Iceland win far better terms for the repayment. An earlier agreement was demolished—93% of voters said no—in a another referendum, in March 2010.
The Source
Icelanders Don't Like Being Pushed Around
But Iceland's president, Ólafur Ragnar Grímsson, in February vetoed a Parliamentary bill that would have sealed the new deal. That triggered Saturday's referendum. Mr. Grímsson's role is largely ceremonial and vetoes are extremely rare.
Both Britain and the Netherlands expressed disappointment and indicated they would fight it out with Iceland in court. "The time for negotiations is over," said Jan Kees de Jager, the Dutch finance minister.
Sunday, Mr. Grímsson said Iceland had, again, spoken clearly. "The leaders of other states and international institutions will have to respect this expression of the national will," he said. He pointed out that the U.K. and the Netherlands would, despite the rejection, receive "immense sums" from Iceland because the countries hold claims to Landsbanki's estate.
Iceland is a member of the European Economic Area, which means it has signed up to many of the European Union's financial and trade rules—among them a requirement that countries maintain deposit-insurance systems.
The EFTA Surveillance Authority, a body that polices the EEA agreements in Iceland, Norway and Liechtenstein, has already started legal proceedings against Iceland. The authority says Iceland violated rules by not backing Icesave depositors—and by reimbursing domestic depositors before foreigners.
The dispute will be heard by the Luxembourg-based EFTA Court.
The Icelandic government said the result of the referendum would delay "by some weeks" the next assessment by the International Monetary Fund of Iceland's progress toward economic recovery. The IMF and Nordic nations rescued Iceland with a bailout.
The government said the referendum result wouldn't affect Icelandic government bond repayments in 2011 or 2012.
But it seemed clear that Iceland, already isolated by the financial-system collapse, would remain in a tenuous position. Though neither Britain nor the Netherlands addressed the matter Sunday, either country could veto Iceland's pending application to join the EU.
Still, in the view of many Icelanders, continued isolation may be the better option.
"It is totally insane that taxpayers foot the bill for failed private companies," said Frosti Sigurjónsson, an Internet entrepreneur who is a spokesman for an anti-Icesave group. "It was odious. We had to say no."
The banking disaster is widely seen in Iceland as the folly of a few financiers, and there is profound resistance to assuming their debt.
Iceland's banks collapsed in 2008 after years of growth that depended on foreign loans. When their funding dried up after the Lehman Brothers collapse, the banks found themselves short of cash, and the Icelandic central bank had little foreign currency to offer them.
The Icelandic krona sunk like a stone, and foreign exchange still remains limited. Capital controls keep foreign assets from fleeing Iceland.
The deal rejected Saturday called for Iceland to cover around £2.35 billion ($3.8 billion) of payments to the U.K. and €1.32 billion to the Netherlands—a sum that equals about half a year's economic output on the island of 320,000 people. It would have until 2046 to repay the money at an interest rate of around 3%.
But Iceland estimates that it will be able to cover 90% of the sum—and maybe all of it—with proceeds from the sale of the defunct Landsbanki's assets, and thus only a small fraction would come directly from the pocket of taxpayers.
—Ainsley Thomson and Archibal Preuschat contributed to this article.
http://online.wsj.com/article/SB10001424052748704641604576254661016938274.html?m od=googlenews_wsj
By CHARLES FORELLE
For the second time, Icelanders voted down a deal to repay Britain and the Netherlands billions of euros lost in the island nation's 2008 financial collapse—at once a bold popular rejection of the notion that taxpayers must bear the burden for bankers' woes and a risky outcome that will complicate Iceland's efforts to rejoin global markets.
People celebrate while watching the results in a referendum on whether to approve a renegotiated deal to compensate Britain and The Netherlands over the 2008 collapse of Icesave bank at a bar in Reykjavik on Sunday.
The money in question, about €4 billion ($5.8 billion), was placed by British and Dutch depositors in an Icelandic Internet bank called Icesave, and then lost when Icesave's operator, Landsbanki Islands, collapsed along with the rest of Iceland's big banks in October 2008.
Nearly 60% of 175,000 voters rejected a plan to compensate the British and the Dutch governments, who had stepped in to pay their own Icesave depositors when Iceland's deposit-insurance scheme ran out of money.
The deal was the result of months of negotiation that saw Iceland win far better terms for the repayment. An earlier agreement was demolished—93% of voters said no—in a another referendum, in March 2010.
The Source
Icelanders Don't Like Being Pushed Around
But Iceland's president, Ólafur Ragnar Grímsson, in February vetoed a Parliamentary bill that would have sealed the new deal. That triggered Saturday's referendum. Mr. Grímsson's role is largely ceremonial and vetoes are extremely rare.
Both Britain and the Netherlands expressed disappointment and indicated they would fight it out with Iceland in court. "The time for negotiations is over," said Jan Kees de Jager, the Dutch finance minister.
Sunday, Mr. Grímsson said Iceland had, again, spoken clearly. "The leaders of other states and international institutions will have to respect this expression of the national will," he said. He pointed out that the U.K. and the Netherlands would, despite the rejection, receive "immense sums" from Iceland because the countries hold claims to Landsbanki's estate.
Iceland is a member of the European Economic Area, which means it has signed up to many of the European Union's financial and trade rules—among them a requirement that countries maintain deposit-insurance systems.
The EFTA Surveillance Authority, a body that polices the EEA agreements in Iceland, Norway and Liechtenstein, has already started legal proceedings against Iceland. The authority says Iceland violated rules by not backing Icesave depositors—and by reimbursing domestic depositors before foreigners.
The dispute will be heard by the Luxembourg-based EFTA Court.
The Icelandic government said the result of the referendum would delay "by some weeks" the next assessment by the International Monetary Fund of Iceland's progress toward economic recovery. The IMF and Nordic nations rescued Iceland with a bailout.
The government said the referendum result wouldn't affect Icelandic government bond repayments in 2011 or 2012.
But it seemed clear that Iceland, already isolated by the financial-system collapse, would remain in a tenuous position. Though neither Britain nor the Netherlands addressed the matter Sunday, either country could veto Iceland's pending application to join the EU.
Still, in the view of many Icelanders, continued isolation may be the better option.
"It is totally insane that taxpayers foot the bill for failed private companies," said Frosti Sigurjónsson, an Internet entrepreneur who is a spokesman for an anti-Icesave group. "It was odious. We had to say no."
The banking disaster is widely seen in Iceland as the folly of a few financiers, and there is profound resistance to assuming their debt.
Iceland's banks collapsed in 2008 after years of growth that depended on foreign loans. When their funding dried up after the Lehman Brothers collapse, the banks found themselves short of cash, and the Icelandic central bank had little foreign currency to offer them.
The Icelandic krona sunk like a stone, and foreign exchange still remains limited. Capital controls keep foreign assets from fleeing Iceland.
The deal rejected Saturday called for Iceland to cover around £2.35 billion ($3.8 billion) of payments to the U.K. and €1.32 billion to the Netherlands—a sum that equals about half a year's economic output on the island of 320,000 people. It would have until 2046 to repay the money at an interest rate of around 3%.
But Iceland estimates that it will be able to cover 90% of the sum—and maybe all of it—with proceeds from the sale of the defunct Landsbanki's assets, and thus only a small fraction would come directly from the pocket of taxpayers.
—Ainsley Thomson and Archibal Preuschat contributed to this article.
http://online.wsj.com/article/SB10001424052748704641604576254661016938274.html?m od=googlenews_wsj