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13th Aug 2022

Iceland's president triggers second referendum on Icesave deal

  • An Icelandic protester opposes the repayment agreement in early 2010 (Photo: Ane Cecilie Blichfeldt /norden.org)

Iceland's president has vetoed a draft repayment deal with Britain and the Netherlands for the second time in just over a year, handing Icelandic voters a second referendum on the controversial Icesave saga and throwing the small island nation's EU bid into further confusion.

Olafur Ragnar Grímsson made the announcement on Sunday (20 February), just days after Icelandic lawmakers approved a new package aimed at returning roughly €4 billion to London and the Hague (€1.32 billion).

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In 2008, the two EU governments were forced to compensate British and Dutch citizens who lost money with the online bank Icesave, following the collapse of parent firm Landsbanki as Iceland's banking sector went into meltdown. A protracted dispute with Reykjavík over retrieving the money subsequently developed.

Despite improved terms in the latest repayment agreement - Iceland has until 2046 to repay, at an interest rate of about three percent - Mr Grímsson said Icelandic voters still deserved the final say.

"There is support for the view that the people should once again, as before, act together with the Althingi [parliament] as the legislator in this matter," he said.

The president indicated that more than 40,000 voters, about a fifth of the electorate, had formally requested a referendum, with many reluctant to pay for what they perceive as the mistakes of the country's banking classes.

Similar grassroots campaigns roughly a year ago led to the collapse of an earlier, more punitive agreement.

The initial attempts to repay Britain and the Netherlands in 2009 were met with strong resistance in parliament, with lawmakers finally agreeing a bill later that year. Mr Grímsson vetoed the agreement in early 2010 however, triggering a referendum which saw 93 percent of voters reject the repayment package.

Since gaining independence from Denmark in 1944, Icelandic presidents have used the veto only three times, including last Sunday.

The decision places a question mark over future payments under Iceland's €4.6 billion bail-out from the International Monetary Fund and four Nordic countries, handed to Reykjavík in November 2010 after the failure of Iceland's biggest banks and the collapse of its currency.

The international lender has said the bail-out is separate from the Icesave dispute, but disbursements have been delayed before.

Icelandic supporters of eurozone and EU membership have argued that the clubs would bring greater stability to the island in future, leading Reykjavík to formally submit an EU application in June 2009.

Backing for the idea, which must be approved by all 27 EU member states, including Britain and the Netherlands, has since sharply declined among the Iceland's 318,000 citizens, partially as a result of bitterness over the Icesave dispute.

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