Iceland's president vetoes bank payback
Share
The row over refunds for foreign governments who lost out in the collapse of Iceland's banking system has reignited as the Icelandic president today bowed to popular pressure and asked for a referendum on the hotly contested issue of compensation.
The Icelandic government, or Althingi, approved a bill last week allocating €3.8 billion to the UK and Dutch governments, who ended up compensating their own citizens for savings lost when Icesave, the internet arm of Iceland's Landsbanki bank, collapsed in October 2008.
However, at a press conference today Icelandic President Olafur Grimsson announced he will not be signing the bill into law after he received a petition signed by about a quarter of the country's population. Instead, he said the matter should go to a referendum "as soon as possible".
Opinion polls show that the majority of Icelanders are opposed to forking out compensation to foreign governments when their own economy is still in crisis following the 2008 economic meltdown.
Only once before in the republic's 65-year history has a president, whose post is largely symbolic, taken such a step and refused to approve a law passed by the parliament.
According to Reykjavik correspondent Björn Malmquist, the government are likely to prevent a referendum by withdrawing the bill and coming up with a new, less controversial draft.
Economic revival endangered
Nevertheless, the president's refusal to sign the bill has caused major problems for Iceland's government both at home and abroad.
Iceland's Prime Minister Johanna Sigurdardottir has tied her political future to that of the Icesave bill, saying in the past that her government could step down if it was blocked. She reacted angrily to the president's move, accusing him of throwing the country's economic revival programme "into serious disarray."
Her plans for economic recovery rely heavily on IMF handouts, which will be at risk if Iceland fails to pay out compensation to foreign governments. A Finnish official has already said that the decision is likely to delay a loan of €1.8 billion from Nordic countries.
This was the case last year when IMF bailout funds were temporarily halted after the UK and the Netherlands objected to Reykjavik's attempt to put an expiry date on repayments in its first draft of the compensation bill.
If the public vote down the law then this could also prove detrimental to Iceland's hopes for fast-track membership of the EU. The UK treasury has announced that it expects Iceland "to live up to its obligations" and that it will take up the latest developments with the EU.
