UK 'disappointment' as Iceland rejects repayment deal

 
Icelanders queue to vote in Reykjavik After the voters' verdict, the issue may now have to go to the courts

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Icelanders have rejected the latest plan to repay the UK and Netherlands some 4bn euros lost when the country's banking system collapsed in 2008.

Partial referendum results show 58% voting no, and 42% supporting the plan.

Johanna Sigurdardottir, Iceland's Prime Minister, said the rejection meant "the worst option was chosen".

UK Treasury minister Danny Alexander said the decision was "disappointing" and the matter would go to an international court.

Dutch Finance minister Jan Kees de Jager said he would be consulting Britain about taking further steps against Iceland, but added that the matter would likely end up in court.

"I am very disappointed that the Icesave agreement did not get through. This is not good for Iceland, nor for the Netherlands.

"The time for negotiations is over. Iceland remains obliged to repay. The issue is now for the courts to decide," Mr de Jager said in a statement.

It is the second time a referendum has rejected a repayment deal.

Iceland's Landsbanki bank ran savings accounts in the UK and Netherlands under the name Icesave and investors there lost 4bn euros (£3.5bn; $5.8bn).

When it collapsed in 2008, the British and Dutch governments had to reimburse 400,000 citizens - and Iceland had to decide how to repay that money.

Analysis

The Icelandic people were damned if they did and damned if they didn't. It looks as if they still couldn't stomach the idea of paying off the debts of privately owned banks - even if the revised deal was considerably more generous.

The consequences of this referendum vote is that Iceland's years in the financial wilderness could be extended much further.

Moody's and other ratings agencies look set to downgrade the country even further, making it prohibitively more expensive to borrow on the open markets.

Iceland's bid to join the EU will be paused or even vetoed by Britain and the Netherlands. And the tiny Atlantic economy is facing legal action in the EFTA court which might force it to pay up sooner than planned and at a punitive interest rate.

Democracy doesn't pay if you're an Icelander.

Mr Alexander, Chief Secretary to the Treasury, said on the Andrew Marr programme: "It's obviously disappointing... We tried to get a negotiated settlement.

"We have an obligation to get that money back, and we will continue to pursue that until we do... We have a difficult financial position as a country and this money would help," he said.

'Such a revulsion'

Iceland's parliament had backed the deal, but President Olafur Ragnar Grimsson refused to sign it, triggering the referendum.

A previous deal, imposing a tougher repayment regime, was rejected in a March 2010 referendum by 93% of voters.

Finance Minister Steingrimur Sigfusson appeared to rule out a third attempt to persuade voters to accept a repayment deal.

"I think we're getting a very clear sign from this referendum, that further negotiations are ruled out. No use in trying that again."

The issue will now be referred to an international court, the European Free Trade Association Surveillance Authority, a process which could take several years.

Backers of a "yes" vote had argued the repayment deal was the best way to resolve the issue in terms of cost and risk to Iceland.

The "no" camp said the Icelandic taxpayer was under no legal obligation to pay for a private bank's losses and that the deal would put a heavy burden on the nation.

Longer period, lower interest

Under the terms of the rejected deal, Iceland would have paid the money back with 3.3% interest to the UK, and 3% to the Netherlands, over 30 years between 2016 and 2046.

Under the previous proposal, the money was to be paid back with 5.5% interest between 2016 and 2024.

Prime Minister Johanna Sigurdardottir Prime Minister Johanna Sigurdardottir: "Disappointing numbers"

The actual cost to the state was expected to be much less than the 4bn euros owed, as the government said most of the repayment would come from selling the assets of Landsbanki.

The government has said it did not expect the cost to exceed 50bn kronur (£168m).

Analysts say a resolution of the issue is vital to Iceland's prospects for recovery because it would allow the country to return to the financial markets to fund itself.

Solving the dispute is also seen as key to Iceland's chances of joining the EU.

Iceland's three main banks collapsed within days of each other in October 2008.

The government compensated Icelandic savers, but overseas customers faced losing all of their money.

The issue sparked a diplomatic row between Iceland and the UK, and created uncertainty over Iceland's economic recovery.

 

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  • rate this
    +4

    Comment number 338.

    Having visited Iceland, after the collapse od Landsbanki, and my husband having faced redundancy several times due to the company he works for having all their funds invested in the same bank I applaud the bravery of the Icelandic people for voting NO, to heap that debt on an INNOCENT population of less than 260,000 people because of the actions of 3 bankers one of which resides in the UK is wrong

  • rate this
    +8

    Comment number 337.

    I understand and sympathize with the Icelandic majority vote - I only wish the British taxpayer (of which I am one) had the option of a referendum when Royal Bank of Scotland, HBOS, Northern Rock and others were bailed out to the tune of £850 billion (using our taxpayer money with dire consequences as we're experiencing today).

  • rate this
    +4

    Comment number 335.

    I voted NO to make example for others to follow! People of Europe and around the world! We, the public need to fight against tyranny of the finincial sector. We are watching CEO of big banks be payed millions of tax payers money in bonuses for bad losses and bail-outs!! Where is there responsibility? Our Icelanders big bankers have moved to UK and LUX. It´s all yours. We dont want them..

  • rate this
    +4

    Comment number 319.

    I have just come back from iceland yesterday and I agree with what everyone said to me over there. Banks have risk which is why you get the return. You cannot choose a high rate and expect to get all the money back. Its pretty harsh on iceland with them being c300,000 and UK an NE being c80million.

  • rate this
    +32

    Comment number 214.

    I voted 'NO´!
    1. I am not signing a check without knowing exactly the exact final amount.
    2. If all bank losses are to be paid by the taxpayers, all profits earned should go to the taxpayers as well. Taxpayers can not be handed the short end of the stick all the time.
    3. Mr. Alexander: The creator of Icesave and owner of Landsbanki lives and works in London. Go knock on his door!

 

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