Sunday, January 3, 2010

Nearly a quarter of Iceland’s voters have signed a petition calling for President Ólafur Ragnar Grímsson to veto the bill passed last week to pay €3.8 billion to the United Kingdom and The Netherlands to compensate depositors impacted when the Icesave online bank collapsed in 2008.

“I consider it to be a reasonable demand that the economic burden placed on the current and future generations of Icelanders, in the form of a state guarantee for Icesave payments to the UK and Dutch governments, be subject to a national referendum,” says the petition.

The petition also demands a referendum be held; any bill not signed by the President must do so under the country’s constitution. This constitutional clause has only once been invoked since the country’s independence from Denmark in 1944. Ólafur challenged a media reform bill in 2004 which the parliament passed by a margin of only two votes. The bill which would have forced the breakup of Baugur Group due to a mix of media and business interests.

The group collecting signatures and who handed over the petition to the President, InDefence, called the bill a “huge risk” for Iceland’s economic future. “All projections based on realistic assumptions […] showed without doubt that Iceland would be unable to meet the payments stipulated by the Icesave loan agreements as set out in the disputed legislation,” it announced in a statement.

Organiser Magnus Arni Skulason made the comparison between repaying the debt and financing Iceland’s health service. “We were able to represent our arguments to the president, and also on the occasion we handed over a petition to ask the president to reject the current Icesave bill,” he said to the BBC. “The interest rate on the Icesave agreement for Iceland is like running the National Health Service of Iceland for six months.”

Magnus expressed preference for the previous legislation from the Icelandic government in August last year. That would have seen the interest paid limited and a time-limit on the period for payment where any outstanding amount would be written off after fifteen years.

Icelandic Prime Minister Jóhanna Sigurðardóttir and her coalition government threatened to resign if the bill was not passed by parliament. It did so by a slim three vote majority: 33 in favour, 30 against. One junior minister has already resigned over the matter.

Icesave was the online service offered by the Landsbanki bank and proposed high interest rates to investors. When it collapsed in October 2008 it had its accounts frozen and had to be rescued, losing 320,000 British and Dutch investors their savings. They were compensated in part by their own governments, which in turn looked to the Icelandic goverment to recompense them. In addition to the Landsbanki, the Glitnir and Kaupthing banks also had to be rescued by the Icelandic government.

The €3.8 billion, to be repaid in installments starting in 2017 over eight years, represents 40% of Iceland’s gross domestic product. Repayment of the debt is an important factor in the country’s application to join the European Union.