Iceland votes on debt repay deal with UK, Dutch

AP News
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Posted: Apr 09, 2011 11:31 AM
Iceland votes on debt repay deal with UK, Dutch

Icelanders voted Saturday on whether to approve a deal to repay Britain and the Netherlands $5 billion for their citizens' deposits in the failed online bank Icesave, with voters torn between ending the bruising dispute and resisting demands to pay for what many see as the sins of a few reckless bankers.

Polls put the "no" side slightly ahead, but also showed a large number of undecided voters.

"The Icelandic nation has been put in a terrible situation," said Helgi Sigurdsson, a 36-year-old journalist voting in the wind-lashed capital, Reykjavik. "It has two choices _ both are bad.

"Probably a lot of people stood for a long time holding the ballot slip."

Icelanders overwhelmingly rejected a previous deal in a referendum last year. The government hopes a "yes" vote on an improved offer passed by parliament will finally resolve a dispute that has caused friction among the three countries and complicated Iceland's recovery from economic collapse.

Skuli Jonas Skulason, a 40-year-old business administrator at the Icelandic University Hospital, said he planned to vote yes.

"The parliamentarians who made that decision are better informed about the matter than I am," he said. "And if a majority of parliamentarians came to the decision to endorse this deal, then that is the way to go."

The messy dispute stems from the collapse of Iceland's banks _ and the tiny island nation's overheated economy _ in 2008.

British and Dutch savers had deposited more than $5 billion in Icesave's high-interest accounts. After Icesave collapsed, British and Dutch authorities borrowed money to compensate their citizens, then turned to Iceland for repayment.

The dispute has grown acrimonious, with Britain and The Netherlands threatening to block Iceland's bid to join the European Union unless it is resolved.

Failure to agree a deal also stalled installments from a $4.6 billion loan from the International Monetary Fund.

Iceland went from economic wunderkind to fiscal basket case almost overnight when the credit crunch took hold. Iceland's banks collapsed within a week in October 2008, its krona currency plummeted and protests toppled the government.

The Icesave debt was initially set at $5.3 billion, a crippling burden for Iceland's 320,000 inhabitants. The new deal is expected to cost Iceland just under 50 billion Icelandic kronur ($444 million).

The plan would see Iceland start repayments on the debt's interest in 2016 and finish by 2046, at an interest rate of 3 percent to The Netherlands and 3.3 percent to Britain. The recovered assets of Icesave's parent bank, Landsbanki, are expected to cover the majority of the debt.

The deal was reached in December after long negotiations and approved by Iceland's parliament in January but vetoed by President Olafur Ragnar Grisson amid strong public opposition.

Many Icelanders feel they should not have to pay for the mistakes of their banking elite, who made deals around the world during a decade of boom before the credit crunch struck.

"Taxpayers should not be responsible for paying the debts of a private institution," said Sigriur Andersen, a spokeswoman for the Advice group, which opposes the agreement. "I think that sends the wrong message onto the market, and sets a wrong precedent."

Travel company director Egill Orn Arnarsson, 48, said Icelanders' refusal to acquiesce had served the country well in the past, leading to independence from Denmark in 1944 and expanding the country's fishing rights during the "Cod War" dispute with Britain in the 1970s.

He said a "no" vote "will save us from national bankruptcy in 2011 and avert us indebting future generations here in Iceland."

Polls close at 10 p.m. (2200 GMT, 6 p.m. EDT) and results of the vote are expected early Sunday.