Yesterday’s referendum in Iceland on whether or not to back back the UK and Netherlands after the collapse of Icesave in 2008, has been met with a resounding “no”. After 70% of ballots were counted, 57.7% were against, with 42.4% voting for repayment of debts. This is, without doubt, a huge embarassment to Reykjavik.
This referendum was the second of its kind. The first repayment plan was rejected and better terms for Iceland were negotiated. Under this second referendum, Iceland’s debt would be gradually repayed until 2046, at a three per cent interest rate on the 1.87bn euros it owes the Netherlands, and a 3.3.% interest rate on the remainder, which is owed to the UK.
This may be a “shock” for Johanna Sigurardottir, Iceland’s centre-left Prime Minister, but I would replace that with “disaster”. Economically, it is already in dire straights – it has been forced to accept a £2.8bn bailout from the International Monetary Fund (IMF). Prolonged uncertainty in the Icesave dispute can only hamper Iceland’s economic recovery. Its ability to borrow on the financial markets and further downgrade Iceland’s credit rating. Fitch is already calling it “junk” and Moody’s warned in February that it would follow if this referendum voted in a “no” vote. Anyone want to call them and check?
It would also prevent Iceland’s accession to the EU – with unanimity necessary in the European Council for permitting the accession of new states, the UK or Netherlands could easily prevent Iceland’s entry, just as Greece and Cyprus threaten to block Turkey’s. However, this should not be of major concern for the EU itself. Nice as it would be to have another rich, Western nation join the EU (one guaranteed to be a net contributor, if not at first), and a probable Eurozone candidate – we can’t escape the fact that only the Social Democrats in Iceland are in favour of membership. Can the EU suffer another Eurosceptic country joining the EU?
Danny Alexander, Britain’s Chief Secretary to the Treasury, has said “it now looks like this matter will end up in the courts”. Jan Kees de Jager, Dutch Finance Minister, claimed “the matter is now in the hands of justice”. If the case is to go before the European Free Trade Association (EFTA) Court, the process will doubtless be a lengthy one.
- You: Icesave ‘no’ vote wins in Iceland referendum (france24.com)
- Iceland voters say ‘no’ to repayment of Icesave losses to UK and Netherlands (guardian.co.uk)
- Court case looms as Iceland again rejects debt deal – Reuters (news.google.com)
- UK and Netherlands to sue Iceland (bbc.co.uk)