Defiant Icelandic voters have resoundingly rejected a €3.9bn plan to pay off Britain and the Netherlands for debts spawned by the collapse of internet bank Icesave, according to initial results today.
Results returned from around 83,500 referendum ballots – or more than 40% of the total ballots expected – counted so far showed 93% of voters said No, compared with just 1.5% who backed the deal.
The referendum results are indicative of how angry many Icelanders are at bankers and politicians as the tiny island nation struggles to recover from a deep recession.
The global financial crisis wreaked political and economic havoc on Iceland as its banks collapsed within the space of a week in October 2008 during the credit crunch and its currency, the krona, plummeted. The Icelandic government was the first to fall as a result of the meltdown.
Icelanders were deciding whether to back a plan outlining the payment of €2.5bn to Britain and €1.3bn to the Netherlands as compensation for funds the governments paid to around 340,000 investors who had accounts with Icesave, an Icelandic internet bank that offered high interest rates before it failed along with its parent, Landsbanki.
Many voters say they object to the tough terms of the deal imposed by the debtor countries, not the idea of payment itself. They are resentful of their government’s failure to curtail the excessive spending of a handful of bank executives that led the country into its current malaise.
“This result is no surprise,” prime minister Johanna Sigurdardottir said. “Now we must turn to the task of finishing the negotiations on Icesave.”
Icelandic authorities have recently been in talks with Britain and the Netherlands to come up with a better deal to try to avert yesterday’s referendum, which was forced by the refusal of Iceland’s president to agree to the so-called Icesave bill.
Last-minute talks between the three countries broke down this week, despite the debtor countries saying they offered better terms for a new deal – including a significant cut on the 5.5% interest rate in the original deal hammered out at the end of last year.
The vote could jeopardise Iceland’s credit ratings, making it harder to access much-needed funding to fuel an economic recovery.
Unemployment has surged since the crisis began to about 9% in January and inflation is running at about 7% annually, while the island’s economy continues to shrink.
Britain said its “best and final offer had been turned down”, but Iceland’s Foreign Ministry said last night it remained confident a solution acceptable to all parties could be achieved.
The debt owed to Britain and the Netherlands is a small sum compared with the massive amounts spent to rescue other victims of the global meltdown - €135bn was paid out to keep US insurance giant American International Group alive – but many taxpayers in the country say they cannot afford to pay it.
The deal would require each person to pay around €100 a month for eight years - the equivalent of a quarter of an average four-member family’s salary.
“I said no,” said Palmar Olason, 71, at a polling station. “We should get a better deal.”
There have been fears that Britain and the Netherlands will take a hardline stance on Iceland’s application to join the EU and refuse to approve the start of accession talks until an Icesave deal is signed into law.
There is also residual anger that Britain invoked anti-terrorist legislation to freeze the assets of Icelandic banks at the height of the crisis, prompting the worst diplomatic spat between the two countries since the Cod Wars of the 1970s over fishing rights in the North Atlantic.
President Olafur Grimsson tapped into the public anger and used a rarely-invoked power to refuse to sign the so-called Icesave bill after it was passed by parliament in December.
Since then, opinion polls have indicated that a strong majority intended to reject the plan. The Social Democrat-Left Green coalition government and the centre-right opposition say the country could get better terms in negotiations with Britain and the Netherlands.
“I voted no,” said Rognvaldur Hoskuldsson, a 36-year-old machine technologist, after casting his vote yesterday morning.
“We have to send a message that these countries are not going to profit from this situation.”
Although the International Monetary Fund has never explicitly linked delivery of a €3.3bn loan to the reaching of an Icesave deal, it is committed to Iceland repaying its international debt – the months taken to reach the original Icesave deal were responsible for holding up the first tranche of IMF funds last year.