Iceland voters reject debt repayment deal

Voters in Iceland have rejected a government-approved deal to repay Britain and the Netherlands $5bn for their citizens’ deposits in the failed online bank Icesave.

Voters in Iceland have rejected a government-approved deal to repay Britain and the Netherlands $5bn for their citizens’ deposits in the failed online bank Icesave.

Final results from five of six constituencies today showed the “no” side taking just under 60% of the votes.

Prime Minister Johanna Sigurdardottir said the results were disappointing but she would try to prevent political and economic chaos resulting from it.

The result complicates Iceland’s recovery from its 2008 economic collapse.

Icelanders overwhelmingly rejected a previous deal in a referendum last year, but the government hoped a new agreement on better terms would win approval.

The government hoped a “yes” vote on an improved offer passed by parliament would finally resolve a dispute that has caused friction among the three countries and complicated Iceland’s recovery from its economic collapse in 2008.

The messy dispute stems from the collapse of Iceland’s banks – and the tiny North Atlantic nation’s overheated economy – in 2008.

British and Dutch savers had deposited more than five billion US dollars in Icesave’s high-interest accounts.

After Icesave collapsed, British and Dutch authorities borrowed money to compensate their citizens, then turned to Iceland for repayment.

The dispute has grown acrimonious, with Britain and The Netherlands threatening to block Iceland’s bid to join the European Union unless it is resolved.

Failure to agree a deal also stalled instalments from a $4.6bn loan from the International Monetary Fund.

Iceland went from economic wunderkind to fiscal basket case almost overnight when the credit crunch took hold.

Iceland’s banks collapsed within a week in October 2008, its krona currency plummeted and protests toppled the government.

The Icesave debt was initially set at $5.3bn, a crippling burden for Iceland’s 320,000 inhabitants. The new deal is expected to cost Iceland just under 50 billion Icelandic kronur (€307m).

The plan would see Iceland start repayments on the debt’s interest in 2016 and finish by 2046, at an interest rate of 3% to The Netherlands and 3.3% to Britain. The recovered assets of Icesave’s parent bank, Landsbanki, are expected to cover the majority of the debt.

The deal was reached in December after long negotiations and approved by Iceland’s parliament in January but vetoed by President Olafur Ragnar Grisson amid strong public opposition.

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