Iceland referendum

Yesterday's referendum result from Iceland shows what happens when the citizens of a country have had enough of being bullied by corporate and financial interests. About 93% of the ballots cast voted against the deal to repay UK and Dutch investors in Icesave, the Icelandic online bank. This follows the Icelandic President's refusal to sign into law a repayment deal that would leave the residents of Iceland responsible for paying back Icesave's debts.

About €4Bn was lost by investors from Holland and the UK when the bank went bust towards the end of 2008. The online bank was paying high interest rates on deposits which should have been a big warning sign to investors that the risk involved in depositing money there was high. This is the same situation that has existed with Irish banks for the last few years - they have had to pay high interest rates to attract deposits due to their shaky foundations.

When Icesave went to the wall, the Dutch and UK governments stepped in and repaid the depositors from their respective countries. They then demanded that Iceland repay them and in the worst case of international bullying, the UK invoked various anti-terrorism laws to freeze assets belonging to various Icelandic institutions and people.

To my mind, if you live by the sword then you die by it. Taking the reward of high interest rates should remove any responsibility for states to repay you if the bank folds. However, it appears that Iceland has agreed to pay back this money but just not under the terms of the deal struck by the government. It is now back to the drawing board to see how the €4Bn will be raised. For a country with a population of about 320k that works out at about €12,500 each, roughly in line with what NAMA is going to cost per-capita in Ireland. No sign of a politician calling for a referendum on that any time soon though.

For more column inches than you could possibly read on Iceland have a look at the Irish Economy blog.