Icelandic debt repayment referendum, 2010
Encyclopedia
The Icelandic loan guarantees referendum, also known as the Icesave referendum (Icelandic
: Þjóðaratkvæðagreiðsla um Icesave), was held in Iceland
on 6 March 2010. The referendum was resoundingly defeated, with 93% voting against and less than 2% in favor.
The referendum was held to approve the terms of a state guarantee on the obligation of the Depositors' and Investors' Guarantee Fund
(Tryggingarsjóður innstæðueigenda og fjárfesta), in particular a €
3.8 billion loan (€ 11,964 per person) from the governments of the United Kingdom
and the Netherlands
to cover deposit insurance
obligations in those countries. The referendum was held under article 26 of the Icelandic Constitution after President
Ólafur Ragnar Grímsson
refused to counter-sign the corresponding Act of Parliament (known as the second Icesave bill) into law on 5 January 2010.
The referendum was the first to be held in Iceland since 1944, and required special legislation. The Althing
(Iceland's parliament) approved a motion on 8 January 2010 which called for the referendum to be held by 6 March at the latest. The motion passed by 49–0 with 14 abstentions. The date of the referendum was later set for 6 March.
arise from the 2008–2011 Icelandic financial crisis, which saw Iceland's three main commercial banks collapse within the space of a week. One of those banks, Landsbanki
, had taken retail deposits from more than 400,000 British and Dutch customers through its branches in London
and Amsterdam
, through a product known as "Icesave".
At the time of the economic collapse, the Depositors' and Investors' Guarantee Fund had equity
of only 10.8 billion krónur
,ISK8.3bn at the end of 2007 (Financial statements 2007) plus ISK2.5bn raised in 2008 to keep within the statutory minimum (Press release). about €68 million at the exchange rates of the time and far from sufficient to cover the Dutch and British claims. The initial reaction of the Icelandic authorities was to disclaim state responsibility for the shortfall in the insurance fund, pointing out that both the Guarantee Fund and Landsbanki were private corporations
(although the Guarantee Fund was set up and operated under a specific Act of Parliament). One of the governors of the Central Bank of Iceland
, former Prime Minister
Davíð Oddsson
, was interviewed on Icelandic public service broadcaster RÚV
and stated that "we [the Icelandic State] do not intend to pay the debts of the banks that have been a little heedless". This led to a diplomatic dispute, and the unprecedented (and controversial) freezing of Landsbanki assets in the United Kingdom through the Landsbanki Freezing Order 2008
.
An outline agreement was reached on 16 November 2008, after mediation by France
and the European Union
. Iceland agreed to guarantee the liabilities of the Depositors' and Investors' Guarantee Fund to British and Dutch savers, while the UK and the Netherlands would effectively lend the Guarantee Fund the necessary money. However, the exact terms of the repayment of the loan were not finalized at the time, and negotiations continued into 2009, held up somewhat by the collapse of the Icelandic government in January 2009 and the subsequent elections in April
.
and the Netherlands
on 5 June 2009. The liabilities of the Depositors' and Investors' Guarantee Fund were £2.35 billion in the UK and €1.2 billion in the Netherlands. The governments agreed that the money would be paid back between 2017 and 2023, so that repayments on the deposit insurance loan would not coincide with the repayment of loans from the International Monetary Fund
(IMF), to whom Iceland had to turn during the financial crisis.
(Iceland's parliament) voted 34–15 (with 14 abstentions) to approve a bill (commonly referred to as the Icesave bill) to regulate the repayments. Initially opposed in June, the bill was passed after amendments were added which set a ceiling on the repayment based on the country's gross domestic product
(GDP). Under the measure, up to 4% of Iceland's GDP growth (in sterling terms, from a 2008 base) would be paid to Britain from 2017–2023 while the Netherlands would receive up to 2% of Iceland's GDP growth for the same period. Opponents of the bill argued that Icelanders, already reeling from the crisis, should not have to pay for mistakes made by private banks under the watch of other governments. However, the government argued that if the bill failed to pass, the UK and the Netherlands might retaliate by blocking disbursements from the IMF.
of the IMF loans. Revised loan agreements negotiations, including the cap on repayments, were concluded on 19 October 2009 and the issue went back to the Althing
on the same day. A second Icesave bill was passed on 30 December by 33–30 (no abstentions).
The bill was presented to President
Ólafur Ragnar Grímsson
at a routine meeting of the government the next morning. Grímsson refused to sign the bill immediately, pointing out that it was less than 24 hours since it had been passed by the Althing, and asked for more time to consider it. Article 26 of the Icelandic Constitution states that bills passed by the Althing must be counter-signed by the President within fourteen days or face a national referendum.
The President had previously scheduled a meeting for 2 January 2010 with campaigners from the "Indefence" movement, which opposes the bill. At the meeting Indefence presented a petition bearing 56,089 signatures (nearly 25% of the Icelandic electorate) urging Grímsson not to sign the bill. By 4 January, the number of signatories had risen to 62,000. However, the leaders of the Confederation of Labor (ASÍ), the Federation of State and Municipal Employees (BSRB), the Confederation of Employers (SA) and the Federation of Icelandic Industries (SI) all urged the President to pass the legislation.
Grímsson announced his decision not to sign the bill at a press conference in his official residence (Bessastaðir
) on the morning of 5 January 2010.
Jóhanna Sigurðardóttir
, immediately expressed its "disappointment" with the President's decision and stressed that "the government of Iceland remains fully committed to implementing the bilateral loan agreements and thus the state guarantee provided for by the law."
The UK
Financial Services Secretary, Lord Myners, responded saying that "The Icelandic people, if they took that decision [not to accept the bill], would effectively be saying that Iceland doesn't want to be part of the international financial system," while Dutch
Minister of Finance Wouter Bos
called such a decision "unacceptable", saying that, whatever the outcome of the referendum, Iceland would still be "compelled to pay back the money". A spokesman for UK Prime Minister
Gordon Brown
reacted in similar terms: "The Government expects the loan to be repaid. We are obviously very disappointed by the decision by the Icelandic President, but we do expect Iceland to live up to its legal obligations and repay the money."
Norway
announced that its promised loan to Iceland would not be paid out before the national referendum has been settled. The Norwegian loan is part of a €1.775bn package agreed between Iceland and the four other Nordic countries
on 1 July 2009.
Credit rating agency
Fitch lowered its rating on Icelandic sovereign debt from BBB− to BB+ (junk-bond
grade).
Icelandic language
Icelandic is a North Germanic language, the main language of Iceland. Its closest relative is Faroese.Icelandic is an Indo-European language belonging to the North Germanic or Nordic branch of the Germanic languages. Historically, it was the westernmost of the Indo-European languages prior to the...
: Þjóðaratkvæðagreiðsla um Icesave), was held in Iceland
Iceland
Iceland , described as the Republic of Iceland, is a Nordic and European island country in the North Atlantic Ocean, on the Mid-Atlantic Ridge. Iceland also refers to the main island of the country, which contains almost all the population and almost all the land area. The country has a population...
on 6 March 2010. The referendum was resoundingly defeated, with 93% voting against and less than 2% in favor.
The referendum was held to approve the terms of a state guarantee on the obligation of the Depositors' and Investors' Guarantee Fund
Depositors' and Investors' Guarantee Fund
The Depositors' and Investors' Guarantee Fund is the statutory deposit insurance scheme in Iceland. It is established under Act No...
(Tryggingarsjóður innstæðueigenda og fjárfesta), in particular a €
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
3.8 billion loan (€ 11,964 per person) from the governments of the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
and the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
to cover deposit insurance
Deposit insurance
Explicit deposit insurance is a measure implemented in many countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due...
obligations in those countries. The referendum was held under article 26 of the Icelandic Constitution after President
President of Iceland
The President of Iceland is Iceland's elected head of state. The president is elected to a four-year term by universal adult suffrage and has limited powers. The president is not the head of government; the Prime Minister of Iceland is the head of government. There have been five presidents since...
Ólafur Ragnar Grímsson
Ólafur Ragnar Grímsson
Ólafur Ragnar Grímsson is the fifth and current President of Iceland. He has served as President since 1996; he was unopposed in 2000, re-elected for a third term in 2004, and re-elected unopposed for a fourth term in 2008. He is the longest-serving left-wing president in the history of...
refused to counter-sign the corresponding Act of Parliament (known as the second Icesave bill) into law on 5 January 2010.
The referendum was the first to be held in Iceland since 1944, and required special legislation. The Althing
Althing
The Alþingi, anglicised variously as Althing or Althingi, is the national parliament of Iceland. The Althingi is the oldest parliamentary institution in the world still extant...
(Iceland's parliament) approved a motion on 8 January 2010 which called for the referendum to be held by 6 March at the latest. The motion passed by 49–0 with 14 abstentions. The date of the referendum was later set for 6 March.
Background
The liabilities of the Depositors' and Investors' Guarantee FundDepositors' and Investors' Guarantee Fund
The Depositors' and Investors' Guarantee Fund is the statutory deposit insurance scheme in Iceland. It is established under Act No...
arise from the 2008–2011 Icelandic financial crisis, which saw Iceland's three main commercial banks collapse within the space of a week. One of those banks, Landsbanki
Landsbanki
Landsbanki, also commonly known as Landsbankinn in Iceland, is a private Icelandic bank with international operations...
, had taken retail deposits from more than 400,000 British and Dutch customers through its branches in London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
and Amsterdam
Amsterdam
Amsterdam is the largest city and the capital of the Netherlands. The current position of Amsterdam as capital city of the Kingdom of the Netherlands is governed by the constitution of August 24, 1815 and its successors. Amsterdam has a population of 783,364 within city limits, an urban population...
, through a product known as "Icesave".
At the time of the economic collapse, the Depositors' and Investors' Guarantee Fund had equity
Ownership equity
In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
of only 10.8 billion krónur
Icelandic króna
The króna is the currency of Iceland. The króna is technically subdivided into 100 aurar , but in practice this subdivision is no longer used....
,ISK8.3bn at the end of 2007 (Financial statements 2007) plus ISK2.5bn raised in 2008 to keep within the statutory minimum (Press release). about €68 million at the exchange rates of the time and far from sufficient to cover the Dutch and British claims. The initial reaction of the Icelandic authorities was to disclaim state responsibility for the shortfall in the insurance fund, pointing out that both the Guarantee Fund and Landsbanki were private corporations
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
(although the Guarantee Fund was set up and operated under a specific Act of Parliament). One of the governors of the Central Bank of Iceland
Central Bank of Iceland
The Central Bank of Iceland is the central bank or reserve bank of Iceland. It has served in this capacity since 1961, when it was created by an act of the Alþingi out of the central banking department of Landsbanki Íslands, which had had the sole right of note issuance since 1927 and had...
, former Prime Minister
Prime Minister of Iceland
The Prime Minister of Iceland is Iceland's head of government. The prime minister is appointed formally by the President and exercises executive authority along with the cabinet subject to parliamentary support....
Davíð Oddsson
Davíð Oddsson
Davíð Oddsson is an Icelandic politician and the longest-serving Prime Minister of Iceland, holding office from 1991 to 2004. He also served as Foreign Minister from 2004 to 2005. Previously, he was Mayor of Reykjavík from 1982 to 1991, and he chaired the board of governors of the Central Bank of...
, was interviewed on Icelandic public service broadcaster RÚV
RÚV
Ríkisútvarpið is Iceland's national public-service broadcasting organization.Operating from studios in the country's capital, Reykjavík, as well as regional centres around the country, the service broadcasts a variety of general programming to a wide audience across the whole country via radio...
and stated that "we [the Icelandic State] do not intend to pay the debts of the banks that have been a little heedless". This led to a diplomatic dispute, and the unprecedented (and controversial) freezing of Landsbanki assets in the United Kingdom through the Landsbanki Freezing Order 2008
Landsbanki Freezing Order 2008
The Landsbanki Freezing Order 2008 is an Order of HM Treasury to freeze the assets of Icelandic bank Landsbanki in the United Kingdom made under the Anti-terrorism, Crime and Security Act 2001, by virtue of the fact that the Treasury reasonably believed that "action to the detriment of the United...
.
An outline agreement was reached on 16 November 2008, after mediation by France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
and the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
. Iceland agreed to guarantee the liabilities of the Depositors' and Investors' Guarantee Fund to British and Dutch savers, while the UK and the Netherlands would effectively lend the Guarantee Fund the necessary money. However, the exact terms of the repayment of the loan were not finalized at the time, and negotiations continued into 2009, held up somewhat by the collapse of the Icelandic government in January 2009 and the subsequent elections in April
Icelandic parliamentary election, 2009
A parliamentary election was held in Iceland on 25 April 2009 following strong pressure from the public as a result of the Icelandic financial crisis...
.
Loan agreement
Iceland finally reached bilateral agreements with the United KingdomUnited Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
and the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
on 5 June 2009. The liabilities of the Depositors' and Investors' Guarantee Fund were £2.35 billion in the UK and €1.2 billion in the Netherlands. The governments agreed that the money would be paid back between 2017 and 2023, so that repayments on the deposit insurance loan would not coincide with the repayment of loans from the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF), to whom Iceland had to turn during the financial crisis.
First Icesave bill
On 28 August 2009, the AlthingAlthing
The Alþingi, anglicised variously as Althing or Althingi, is the national parliament of Iceland. The Althingi is the oldest parliamentary institution in the world still extant...
(Iceland's parliament) voted 34–15 (with 14 abstentions) to approve a bill (commonly referred to as the Icesave bill) to regulate the repayments. Initially opposed in June, the bill was passed after amendments were added which set a ceiling on the repayment based on the country's gross domestic product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
(GDP). Under the measure, up to 4% of Iceland's GDP growth (in sterling terms, from a 2008 base) would be paid to Britain from 2017–2023 while the Netherlands would receive up to 2% of Iceland's GDP growth for the same period. Opponents of the bill argued that Icelanders, already reeling from the crisis, should not have to pay for mistakes made by private banks under the watch of other governments. However, the government argued that if the bill failed to pass, the UK and the Netherlands might retaliate by blocking disbursements from the IMF.
Second Icesave bill
The British and Dutch governments did not accept the amendments to the negotiated deal that had been placed into the first Icesave bill, and without a mutually agreed deal continued opposition to payment of the second trancheTranche
In structured finance, a tranche is one of a number of related securities offered as part of the same transaction. The word tranche is French for slice, section, series, or portion, and is cognate to English trench . In the financial sense of the word, each bond is a different slice of the deal's...
of the IMF loans. Revised loan agreements negotiations, including the cap on repayments, were concluded on 19 October 2009 and the issue went back to the Althing
Althing
The Alþingi, anglicised variously as Althing or Althingi, is the national parliament of Iceland. The Althingi is the oldest parliamentary institution in the world still extant...
on the same day. A second Icesave bill was passed on 30 December by 33–30 (no abstentions).
The bill was presented to President
President of Iceland
The President of Iceland is Iceland's elected head of state. The president is elected to a four-year term by universal adult suffrage and has limited powers. The president is not the head of government; the Prime Minister of Iceland is the head of government. There have been five presidents since...
Ólafur Ragnar Grímsson
Ólafur Ragnar Grímsson
Ólafur Ragnar Grímsson is the fifth and current President of Iceland. He has served as President since 1996; he was unopposed in 2000, re-elected for a third term in 2004, and re-elected unopposed for a fourth term in 2008. He is the longest-serving left-wing president in the history of...
at a routine meeting of the government the next morning. Grímsson refused to sign the bill immediately, pointing out that it was less than 24 hours since it had been passed by the Althing, and asked for more time to consider it. Article 26 of the Icelandic Constitution states that bills passed by the Althing must be counter-signed by the President within fourteen days or face a national referendum.
The President had previously scheduled a meeting for 2 January 2010 with campaigners from the "Indefence" movement, which opposes the bill. At the meeting Indefence presented a petition bearing 56,089 signatures (nearly 25% of the Icelandic electorate) urging Grímsson not to sign the bill. By 4 January, the number of signatories had risen to 62,000. However, the leaders of the Confederation of Labor (ASÍ), the Federation of State and Municipal Employees (BSRB), the Confederation of Employers (SA) and the Federation of Icelandic Industries (SI) all urged the President to pass the legislation.
Grímsson announced his decision not to sign the bill at a press conference in his official residence (Bessastaðir
Bessastaðir
Bessastaðir is today the official residence of the President of Iceland and is situated on Álftanes, not far from the capital city, Reykjavík.- History :...
) on the morning of 5 January 2010.
Reactions before the referendum
The Icelandic government, led by Prime MinisterPrime Minister of Iceland
The Prime Minister of Iceland is Iceland's head of government. The prime minister is appointed formally by the President and exercises executive authority along with the cabinet subject to parliamentary support....
Jóhanna Sigurðardóttir
Jóhanna Sigurðardóttir
Jóhanna Sigurðardóttir , , is the Prime Minister of Iceland. Many years a politician, she was previously Iceland's Minister of Social Affairs and Social Security from 1987–1994 and 2007–2009. She has been a member of the Althing for Reykjavík constituencies since 1978, winning re-election on eight...
, immediately expressed its "disappointment" with the President's decision and stressed that "the government of Iceland remains fully committed to implementing the bilateral loan agreements and thus the state guarantee provided for by the law."
The UK
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
Financial Services Secretary, Lord Myners, responded saying that "The Icelandic people, if they took that decision [not to accept the bill], would effectively be saying that Iceland doesn't want to be part of the international financial system," while Dutch
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
Minister of Finance Wouter Bos
Wouter Bos
Wouter Jacob Bos is a Dutch management consultant and former politician of the Labour Party . He was Minister of Finance and Deputy Prime Minister in the Cabinet Balkenende IV from February 22, 2007 till February 23, 2010...
called such a decision "unacceptable", saying that, whatever the outcome of the referendum, Iceland would still be "compelled to pay back the money". A spokesman for UK Prime Minister
Prime Minister of the United Kingdom
The Prime Minister of the United Kingdom of Great Britain and Northern Ireland is the Head of Her Majesty's Government in the United Kingdom. The Prime Minister and Cabinet are collectively accountable for their policies and actions to the Sovereign, to Parliament, to their political party and...
Gordon Brown
Gordon Brown
James Gordon Brown is a British Labour Party politician who was the Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 until 2010. He previously served as Chancellor of the Exchequer in the Labour Government from 1997 to 2007...
reacted in similar terms: "The Government expects the loan to be repaid. We are obviously very disappointed by the decision by the Icelandic President, but we do expect Iceland to live up to its legal obligations and repay the money."
Norway
Norway
Norway , officially the Kingdom of Norway, is a Nordic unitary constitutional monarchy whose territory comprises the western portion of the Scandinavian Peninsula, Jan Mayen, and the Arctic archipelago of Svalbard and Bouvet Island. Norway has a total area of and a population of about 4.9 million...
announced that its promised loan to Iceland would not be paid out before the national referendum has been settled. The Norwegian loan is part of a €1.775bn package agreed between Iceland and the four other Nordic countries
Nordic Council
The Nordic Council is a geo-political, inter-parliamentary forum for co-operation between the Nordic countries. It was established following World War II and its first concrete result was the introduction in 1952 of a common labour market and free movement across borders without passports for the...
on 1 July 2009.
Credit rating agency
Credit rating agency
A Credit rating agency is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves...
Fitch lowered its rating on Icelandic sovereign debt from BBB− to BB+ (junk-bond
High-yield debt
In finance, a high-yield bond is a bond that is rated below investment grade...
grade).
Result
External links
- Act No 96/2009 (first Icesave bill, certified translation)
- Bill amending Act No 96/2009 (second Icesave bill, draft translation provided by the AlthingAlthingThe Alþingi, anglicised variously as Althing or Althingi, is the national parliament of Iceland. The Althingi is the oldest parliamentary institution in the world still extant...
)- Other documents related to the second Icesave bill, provided by the AlthingAlthingThe Alþingi, anglicised variously as Althing or Althingi, is the national parliament of Iceland. The Althingi is the oldest parliamentary institution in the world still extant...
- Other documents related to the second Icesave bill, provided by the Althing