Icelanders are holding today a referendum about the UK+NL “imposed” agreement on repayment of debts to these two countries by Iceland. The agreement – called Icesave – had been signed by the Reykjavik government last December, but it had been stopped in its approval process by popular opposition. President Olafur Ragnar Ericsson refused to sign it and called a referendum to give people the final decision.
Iceland has been the first country to fall victim of the global financial crisis ignited by Merryl Linch. As in a domino, the wave of failures spread from the USA and north America across the ocean and invested the highly globalized (i.e. based on services rather than goods) economies of the UK and the Netherlands. Eager to exploit as much as possible the benefits of a globalized financial system, British and Dutch banks and corporations had entangled the small (and to some extent naive) Icelandic economy into their web made of bank accounts, financial transactions at international levels, financial schemes and all of the most modern (and untrustworthy) financial services.
The referendum, over repayment terms for Reykjavik’s $5 billion “Icesave” debts to Britain and the Netherlands, is widely expected to result in a “no” vote. Iceland’s premier Johanna Sigurdardottir Friday called for a new debt repayment deal with London and The Hague for a collapsed bank, while urging voters to shun a “meaningless” referendum on the controversy.
“It’s a matter of life and death for the Icelandic economy. We need an Icesave solution as soon as possible,” she said at a press conference, ahead of Saturday’s plebiscite on the banking deal. “I strongly call on Britain and Holland to find a satisfactory agreement.”
Polls indicate Iceland’s voters will resoundingly reject the referendum on the current agreement to repay Britain and the Netherlands some 3.9 billion euros (5.3 billion dollars) for money they paid to 340,000 people hit by the October 2008 collapse of Icesave online bank.
Iceland’s gross domestic product (GDP) increased by 3.3 percent in the last three months of 2009 from the prior three months, but “it’s not springtime yet,” said Antje Praefcke, analyst at Commerzbank. “Maybe there’s less snowfall, but it’s not spring yet.”
Iceland’s economy remains in dire straits and the figures will do little to sway angry voters who are expected to reject an unpopular deal on Icelandic debts struck last year.
While the quarterly increase was welcome news, GDP was still down 7.0 percent from a year earlier. Praefcke said Iceland’s central bank still expected further economic contraction and the referendum risked delaying a recovery.
Despite the negative consequences of rejecting the deal, Icelanders have no real incentive to approve it. They are furious about what they see as overly harsh terms from their”creditors”, they are now certain they can get a much better deal. The debts arose after the two countries autonomously decided on compensations for their savers for money lost in accounts run by an Icelandic bank.
The rejection could slow the negotiations between Iceland and the European Union about the Nordic country joining the 27-Member States Union.