Focus On: Iceland's "Icesave" Referendum

April 1, 2011, 12:31 p.m.

On April 9, Icelanders will head to the polls for a special referendum regarding a loan guarantee to Britain and the Netherlands. This is the second time Iceland will vote on the issue; last year, voters overwhelmingly rejected a similar ballot initiative.

In October 2008, the Icelandic bank, Landsbanki, collapsed, and with it its online Icesave branch, and the investments of 340,000 British and Dutch savors.  Iceland's Depositors' and Investors' Guarantee Fund lacked the funds to compensate its investors and the Icelandic government initially refused to take responsibility for the failure of a private bank.  After consdierable negotiations, Iceland agreed to insure the liabilities of Icesave, while the British and Dutch governments  provided a 3.8 billion Euro loan to cover the deposit insurance obligations for their citizens.  In August 2009, the Icelandic parliament, the Althing, passed a bill setting out terms of repayment to the two countries for the loan. President Olafur Grimsson, however, refused to sign the bill, forcing a nationwide referendum on the issue. In March 2011, Icelandic voters overwhelmingly voted against the measure, with 93 percent casting “no” votes. The rejection resulted in severe diplomatic tension between Iceland and both Britain and the Netherlands. It also caused a downgrading of Iceland’s bond ratings.

On February 16, 2011, the Althing passed a new Icesave bill, with terms considered more favorable for Iceland. The new terms were the result of negotiations with the British and Dutch, and included lower interest rates on repayment as well as a revaluing of the debt. Once again, however, President Grimsson refused to sign the bill, meaning voters will once again be given the chance to weigh in on the issue. Most surveys predict that this time around, voters are likely to pass the referendum, although support is narrowing as Election Day approaches.

Political Situation
Iceland is currently governed by a coalition of the Social Democratic Alliance (SDA) and the Left-Green Movement (LGM). The coalition took power in April 2009, defeating the once dominant Independence Party. While the Independence Party was punished for its inability to handle the financial collapse of 2008, it has sense recovered ground, in part due to the ruling coalition’s inability to deal with the economic situation it inherited. Together, the SDA and LGM control only 33 of 63 seats in the Althingi. In March, two LGM MPs left the coalition, citing disapproval of government policy. Furthermore, the far left of the LGM has been openly vocal about its dissatisfaction over the government’s economic platform. In December, three LGM MPs voted against their coalition’s 2011 budget, resulting in it passing by only one vote. (( Icelandic Government on Shaky Ground IceNews

Confidence in government in Iceland is at an all time low; although voters have lost confidence in the ruling coalition, they are still weary of the opposition, who they blame for causing the financial collapse. Turnout in recent elections has been low, and recent municipal elections saw a record number of blank ballots, or voters who endorsed no party. ((More Voters than Ever Hand in Empty Ballots Iceland Review Online  http://www.icelandreview.com/icelandreview/daily_news/?cat_id=16539&ew_0_a_id=362952)) Voter discontent was also evident last year when the citizens of Reykjavik elected a comedian as their new mayor. ((Icelandic comedian to become Reykjavik's mayor The Telegraph

The ruling coalition has pushed for a yes vote, although there has been mixed support in the alliance. While the majority of the Social Democratic Alliance supports the referendum, supporters of the Left-Green Movement are split.  This is despite LGM members Steingrimur J. Sigfusson, Iceland’s Minister of Finance, and Katrin Jakobsdottir, Minister for Education, urging members of their party to vote in favor of the bill. The referendum is facing strong opposition, however, from the center-right Progress Party, the second largest opposition party in parliament. Independence Party leader Bjarni Benediktssom voted for the bill in parliament, but has stated that he will not campaign for or against the referendum.  The rest of this party has followed suit, avoiding any position on the issue. While initial support for the referendum started out strong, recent polls have shown the gap narrowing. A survey taken on March 17 revealed that a bare majority, 52 percent, were planning on voting “yes”, while 48 percent planned to once again reject the proposal. ((Icelandic Nation Split on Icesave Question, Iceland Review Online   http://www.icelandreview.com/icelandreview/daily_news/Icelandic_Nation_Split_on_Icesave_Question_0_375337.news.aspx))The most recent poll, taken on April 5-6, shows that 55 percent of respondents planned on rejecting the referendum, while 45 percent would approve it. ((Slim Majority of Voters Plan to Reject Icesave, Iceland Review Online    http://www.icelandreview.com/icelandreview/daily_news/Slim_Majority_of_Voters_Plan_to_Reject_Icesave_0_376312.news.aspx))

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