Iceland Voters on Settling Bank Claims: Hell No!

 Econintersect:  Icesave, an online bank domiciled in Iceland, went under at the height of the financial crisis.  It had been heavily used as a repository by citizens in other countries.  Both the UK and The Netherlands had extensive deposits by their citizens and have compensated them for their losses.  These governments then placed a claim against the Iceland government for restitution.  After several previous proposed settlements were laboriously negotiated between the three governments over the past two years, an agreement was reached that resulted in reduced claims against Iceland.  Iceland’s voters rejected this agreement by a wide margin this past week.From an article posted at Yahoo:

With 70 per cent of the vote counted, the “no” vote was 57.7 per cent against 42.3 per cent “yes”, a result that will embarrass the Reykjavik government.

About 230,000 voters were asked on Saturday to decide on the proposal to pay back Britain and the Netherlands 3.9 billion euros ($A5.34 billion) they had spent on compensating 340,000 of their citizens who lost money when Icesave, an online bank, went under at the height of the global financial crisis.

Prime Minister Johanna Sigurdardottir, who heads a centre-left coalition and considered the deal of key importance for Iceland, showed her disappointment.

Sigurdardottir said the result came as “a shock” for the government and for parliament, 70 per cent of whose members had approved the accord before the head of state refused to ratify it and called a referendum.

The latest deal, laboriously negotiated among the three nations over more than two years, was considered more favourable to Iceland than a previous accord rejected in a January 2010 referendum by 93 per cent of Icelanders.

It would allow Iceland to repay the debt gradually until 2046, at a three per cent interest rate for the 1.3 billion euros it owes the Netherlands and at a 3.3 per cent rate for the remainder owed to Britain.

Economist Michael Hudson offered his opinion on the matter in an article written the day before the vote and posted at GEI Opinion:

Iceland’s government seems to have become decoupled from what is good for voters and for the very survival of Iceland’s economy. It thus challenges the assumption that underlies all social science and economics: that nations will act in their own self-interest. This is the assumption that underlies democracy: that voters will realize their self-interest and elect representatives to apply such policies. For the political scientist this is an anomaly. How does one explain why a national parliament is acting on behalf of Britain and the Dutch as creditors, rather than in the interest of their own country? Voters in other countries have removed their governments for agreeing to pay such questionable debts. 

Editor’s Note:  Hudson asked the question:  “Will Iceland vote “No” on April 9, or commit financial suicide?  It seems that Icelanders are not suicidal.

Sources: Yahoo – Australian Associated Press and GEI Opinion