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Iceland and the European Union
The Icesave bill
Aug 13th 2009 | REYKJAVIK
From The Economist print edition
Opposition to paying back British and Dutch bank depositors is growing
IN RETROSPECT, parliamentary approval to apply for European Union membership was easy. The
Icelandic prime minister, Johanna Sigurdardottir, is finding it far harder to persuade Iceland’s parliament,
or Althingi, to ratify the Icesave agreement her government struck in June.
Icesave was a high-interest, internet-only saving scheme launched by an Icelandic bank, Landsbanki, in
Britain and the Netherlands, operating under the EU’s single-market rules (since Iceland is a member of
the European Economic Area). This meant that, when Landsbanki went bust in October 2008, Icesave
depositors were not covered by Dutch and British deposit insurance, relying instead on Iceland’s scheme.
They also expected to be treated in the same way as Icelandic savers, whose total deposits in Landsbanki
were guaranteed by the Icelandic government.
Under the June deal, Iceland, a country of just 300,000 people, is to borrow the staggering sum of $5.5
billion from the British and Dutch governments, at an annual interest rate of 5.5%, to meet the Icesave
bill. But an upsurge of criticism from angry voters, who talk of IceSlave and draw parallels with the
Versailles treaty imposed on Germany in 1919, is leading the parliament to give the deal a rough ride.
Opponents question both the legality of the British and Dutch claims and the wisdom of taking on so much
debt to meet them. Resentment lingers over Britain’s invocation last year of anti-terrorism laws to freeze
Icelandic assets. And critics say the government has allowed itself to be bullied by the British and Dutch
governments just because it is so keen to join the EU.
Ms Sigurdardottir calls the Icesave debate “the most important issue that any Icelandic parliament has
been required to address”. The government argues that most of the debt will eventually be covered by the
sale of Landsbanki assets. It also insists that the deal is an essential part of clearing up Iceland’s financial
mess. Loans from the IMF and Iceland’s Nordic neighbours, worth some $5 billion, are on hold pending its
approval. If debate drags on for too long, Iceland’s credit rating, already close to junk, could be
downgraded again—and that would threaten the chances of a recovery.
Yet by mid-week it seemed unlikely that the parliament would accept the Icesave deal unconditionally.
The question was whether it could attach enough strings to satisfy public opinion without undermining the
deal altogether. If not, it may jeopardise not only Iceland’s EU application—public support for joining has
dropped sharply—but also Ms Sigurdardottir’s shaky coalition and Icelanders’ chances of ever regaining
their enviably high living standards.
Copyright © 2009 The Economist Newspaper and The Economist Group. All rights reserved.
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