ICELAND’S PRESIDENT has refused to sign legislation to reimburse Britain and the Netherlands for nearly €4 billion lost in a failed Icelandic bank, threatening to plunge the crisis-hit country into a fresh round of political and economic turmoil.
Olafur Grimsson, president of Iceland, yesterday said the legislation, narrowly passed by the country’s parliament last week, should be put to a national referendum, amid overwhelming public opposition to the bill.
His decision marked only the second time since Iceland gained independence in 1944 that the president has refused to sign legislation, and it is an act of defiance against Johanna Siguroardottir, prime minister, whose ruling coalition backed the bill.
It also threatens to deepen the diplomatic dispute with Britain and the Netherlands over the lost money, and to jeopardise the €10 billion rescue programme set up by international donors after the collapse of Iceland’s banking sector in 2008.
Iceland’s government has been struggling for months to secure domestic backing for a deal to reimburse the two countries for savings lost in the Icesave arm of Reykjavik-based Landsbanki. But the pact has faced fierce resistance from opposition parties and much of Iceland’s 320,000-strong population, amid criticism that the terms are unfair and would saddle the country with unmanageable debts.
Mr Grimsson, who is serving his fourth term as the elected president, said it was in the interests of democracy to put the legislation to a referendum.
“It has steadily become more apparent that the people must be convinced that they themselves determine the future course,” he said. “The involvement of the whole nation in the final decision is therefore the prerequisite for a successful solution, reconciliation and recovery.”
He made clear that an earlier bill passed in August, which authorised the repayments with various conditions attached, would remain active regardless of the outcome of a referendum. Some of those conditions were rejected by the British and Dutch governments, forcing Reykjavik to seek fresh parliamentary approval last month for a compromise deal.
More than 60,000 people – about a quarter of Iceland’s voting-age population – have signed a petition against the revised bill, and opinion polls indicate that more than two-thirds oppose it.
Mr Grimsson’s decision raises doubts over the future of Ms Siguroardottir’s left-of-centre coalition government, which has staked its authority on pushing through the deal.
The government argued that resolution of the dispute was crucial to economic recovery because the issue has delayed economic assistance from the International Monetary Fund and other lenders, and poisoned diplomatic relations with European allies.
Credit ratings agencies have stressed the importance of the deal to Iceland avoiding further deterioration in its sovereign credit rating. Standard Poor’s raised its outlook on the country from negative to stable after parliament voted to pass the legislation last week by a 33-30 margin.
The dispute has also complicated Iceland’s application last year to join the European Union, with diplomats warning that accession would be unlikely while the country was locked in conflict with Britain and the Netherlands.
