Friday

9th Jun 2023

Opinion

Iceland is fully committed to honouring its obligations

The Government of Iceland remains fully committed to honouring Iceland's obligations in the Icesave dispute with Britain and the Netherlands under international commitments regarding the collapsed Icelandic bank Landsbanki hf.

My government has pledged this; the Icelandic Althingi (Parliament) has agreed, and the country's major political parties are also in agreement on this basic tenet.

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The President of Iceland, Mr. Olafur Ragnar Grimsson, decided to invoke the right, accorded to him by the Constitution, to refer Althingi's decision and the underlying agreement between the government and the governments of Britain and the Netherlands to the nation in a referendum.

The referendum will be held in late February or early March. In my conversations with the Prime Ministers of the UK, the Netherlands, Norway, Sweden, Finland and Denmark, all of them expressed full understanding of the situation.

Opinion surveys in Iceland, following the President's decision, indicate that there is strong and widespread internal dissatisfaction concerning the agreements reached with the UK and the Netherlands, which call for Icelandic taxpayers to pay minimum deposit guarantees to the British and Dutch authorities.

A large majority would have preferred more reasonable terms of payment. There are numerous reasons for the public resentment.

The international banking operations of Icelandic banks, was completely disproportionate to the 300,000 inhabitants, when it collapsed almost overnight in October 2008, resulting in losses equivalent to seven times the nation's GDP.

While the creditors of the banks lost the largest sums, the financial losses suffered by the nation amounted to twice the amount of Iceland's GDP.

In Iceland, as in most countries, the financial recession has placed additional pressures on public finances, resulting in substantially higher taxes and costs for services even without the added costs of the failed banks.

The public is understandably upset that privatised banks were allowed to carry out international, high-risk financial operations without regulators in Iceland, the UK and the Netherlands protecting the public against such serious risks.

European legislation on deposit guarantees, as has been pointed out, is flawed in not envisaging the possibility of a systemic banking collapse. Finally, the nation is dissatisfied with the draconian measures implemented by the British government, which exacerbated a distressed situation.

Despite all of these legitimate concerns, Icelanders realise the importance of fulfilling the state's international commitments. My government is determined to continue its economic reconstruction, as laid out in its' economic programme with the International Monetary Fund (IMF) and friendly European nations.

Substantial progress has been made in the past months, including the re-establishment of the Icelandic commercial banks in co-operation with creditors. The banks are now fully financed in order to serve the needs of the domestic market.

Preparations continue for Iceland's EU accession negotiations, which we hope will commence later this year. The Icesave dispute should not jeopardise our long-term co-operation with the IMF or the EU accession process.

Positive international co-operation is crucial for a small island nation in the North Atlantic. Free trade and openness to its neighbours have always proved to be to Iceland's best advantage. Fortunately Icelandic politicians are in close contact with political leaders and other decision makers in numerous European countries.

My government has been made aware of the widespread understanding of our situation. Hopefully this will contribute to the favourable resolution of the Icesave dispute, while serving as an instructive reminder to all of us of the necessity of ensuring the health and solidity of the international financial system in the years ahead.

Jóhanna Sigurdardóttir is Prime Minister of Iceland

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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