CONFUSION REIGNED in Reykjavik yesterday as voters prepared to spurn a controversial compensation deal for British and Dutch investors and the Icelandic government scrambled for a formula that would allow it to cancel tomorrow’s planned referendum.
The vote was triggered against the government’s wishes when President Ólafur Grímsson refused to sign a law detailing a package to reimburse investors in the failed Icesave online savings bank.
A rejection of this package in Saturday’s referendum could have grave consequences, observers said yesterday.
Iceland risks a fresh bout of financial turmoil, delayed loans from the IMF and European allies as well as derailed plans for European Union membership.
A No vote would also represent a crushing blow to Jóhanna Sigurdardóttir’s centre-left coalition, which only a year ago was hailed as heralding a new start for the troubled north Atlantic nation.
Icelanders, however, seemed willing yesterday both to defy their government and to run the risk of financial fallout by voting No.
An opinion poll published on Tuesday said that three-quarters of voters would reject the Bill, which would force them to pay €3.9 billion to the UK and Dutch governments. Apart from the magnitude of the money involved, Icelanders are still stung by the British government’s use of anti-terror legislation to freeze Icelandic assets in the wake of their banking crisis, a move they believe intensified their predicament.
Resentment against the British prime minister runs deep and this is boosting anti-referendum sentiment. "Perhaps it's because people are unwilling to give in to the bullying behaviour of Brown," Eiríkur Bergmann, a political scientist at Iceland's Bifröst University told The Irish Times.
The anticipated rejection of the compensation package would be “a direct message to Gordon Brown”, Prof Bergmann said.
Icelanders, he added, were willing to fulfil their legal obligations in accordance with the EU depositary bank scheme by providing compensation, “but it must be fair”.
According to one estimate, the amount of money due under the referendum package is the equivalent of €100 a month for eight years for each of the country’s 317,000 inhabitants.
And although the repayments schedule is spread over 15 years with a seven-year grace period, most Icelanders believe the 5.55 per cent interest rate charged is excessive, jeopardises economic recovery and puts too heavy a burden on future generations.
But in the absence of an alternative deal with the UK and the Netherlands – which Iceland’s government has been battling to secure – the country’s immediate prospects are troubled.
In the absence of hard proof that Iceland is willing to live up to its financial responsibilities, the IMF would almost certainly postpone the next tranche of its $2.1 billion emergency loan. Other lenders, including Iceland’s Nordic neighbours, would also be likely to hold back on disbursements pending concrete indications of fiscal responsibility.
Additionally, Iceland’s membership of the European Union is likely to be blocked by the UK and the Netherlands until it delivers a compensation package.
All of these arguments, however, appear to hold little sway with Icelandic voters.
Economy minister Gylfi Magnussen said yesterday that delaying the settlement of the Icesave problem could deepen the country’s projected 2010 economic growth contraction of 2-3 per cent to 5 per cent.
But a sense of resilience prevails: “We’ve been living with this situation for 18 months, but life still goes on. We’re not travelling abroad so much any more, but there are more people in Reykjavik’s restaurants,” said Prof Bergmann.