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April 10, 2011 10:10 pm
Olafur Ragnar Grimsson, Iceland’s president, was in triumphant mood when he addressed the nation on Sunday.
A day earlier, the country’s voters had rejected for a second time a deal to repay Britain and the Netherlands €4bn ($5.8bn) lost in the failed Icesave bank – an outcome that Mr Grimsson saw as vindication of his decision to call another referendum on the issue.
“The people have now spoken clearly on this matter on two occasions,” he said. “The leaders of other states and international institutions will have to respect this expression of the national will.”
His message was aimed at the UK and Dutch governments, which on Sunday vowed to take Iceland to court over the debts, and the European Union, whose accession talks with Reykjavik have been thrown into doubt by the No vote.
More broadly, he seemed to be championing Iceland’s defiant stance as a model for other crisis-hit countries facing similar debates over how to deal with crippling foreign debts. “Solutions to disputes arising from financial crisis and failures of banks must take account of ... democratic principles,” he said.
Mr Grimsson’s head-of- state position is largely ceremonial but he has twice over the past 16 months used his power of veto to block deals backed by the Icelandic government to settle the country’s debts with Britain and the Netherlands. The dispute involves money lost by British and Dutch depositors in the Icesave unit of Landsbanki, one of the Icelandic banks that collapsed in 2008.
The latest deal was on more favourable terms for Iceland than the previous one but much of the country’s 320,000 population remained fiercely opposed to taxpayers guaranteeing repayment of money lost in a private bank by foreign depositors.
“Icelanders are honourable people who want to pay their bills but it is our civil right to have this tried in court to determine legal responsibility for the debt,” said Frosti Sigurjonsson, one of the leading No campaigners.
The case now looks set to be decided by the Luxembourg-based European Free Trade Association court, which judges alleged infringements of European law by countries, such as Iceland, which are part of the European Economic Area but outside the EU. The EFTA Surveillance Authority started proceedings against Iceland last year for failing to meet deposit guarantee requirements under European cross-border banking rules.
“The time for negotiations is now past,” said Jan Kees de Jager, Dutch finance minister. “Iceland is obligated to pay us back. The matter is now for the courts to decide.”
The case has highlighted flaws in European cross-border banking rules and sparked debate over who bears the legal and moral responsibility for foreign deposits held by domestic banks when a country’s financial sector collapses.
It has also raised doubts over the future of Iceland’s centre-left government, led by Jóhanna Sigurdardóttir, prime minister, who has staked her credibility on resolving the Icesave dispute and pushing for EU membership.
Ms Sigurdardóttir des-cribed the referendum result as a “disappointment”. “We must do all we can to prevent political and economic chaos as a result of this outcome.”
Eirikur Bergmann, political scientist at Bifrost University, said it would be difficult for the government to survive but cautioned that it had repeatedly defied predictions of its collapse. The opposition Independence party is still blamed by many voters for leading Iceland into the banking crisis.
Until recently, opinion polls had indicated the government had a good chance of winning the referendum, amid warnings that failure to resolve the Icesave dispute could derail the country’s economic recovery efforts. But the No campaign made a late surge, with an appeal to the independent streak in the Icelandic population.
“The No campaign speaks so clearly to the Icelandic national identity of not giving in to foreign pressure,” said Mr Bergmann. “Whatever the merits of the deal, people are more focused on the questions of principle.”
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