Icelandic loan guarantees referendum, 2010

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The Icelandic loan guarantees referendum, also known as the Icesave referendum (Icelandic: Þjóðaratkvæðagreiðsla um Icesave), was held in Iceland on 6 March 2010. [1]

Icelandic language North Germanic language mainly spoken in Iceland

Icelandic is a North Germanic language spoken in Iceland. Along with Faroese, Norn, and Western Norwegian it formerly constituted West Nordic; while Danish, Eastern Norwegian and Swedish constituted East Nordic. Modern Norwegian Bokmål is influenced by both groups, leading the Nordic languages to be divided into mainland Scandinavian languages and Insular Nordic. Historically, it was the westernmost of the Indo-European languages until the Portuguese settlement in the Azores.

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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. [2] [3] The referendum was held under article 26 of the Constitution of Iceland 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. [4] The proposal was resoundingly defeated, with 98% voting against and less than 2% in favor.

The Depositors' and Investors' Guarantee Fund is the statutory deposit insurance scheme in Iceland. It is established under Act No. 98/1999 on Deposit Guarantees and Investor-Compensation Scheme, which transposes European Union directives 94/19/EC and 97/9/EC into Icelandic law, in accordance with the decisions of the European Economic Area.

Euro European currency

The euro is the official currency of 19 of the 28 member states of the European Union. This group of states is known as the eurozone or euro area, and counts about 343 million citizens as of 2019. The euro is the second largest and second most traded currency in the foreign exchange market after the United States dollar. The euro is subdivided into 100 cents.

United Kingdom Country in Europe

The United Kingdom (UK), officially the United Kingdom of Great Britain and Northern Ireland, and sometimes referred to as Britain, is a sovereign country located off the north-western coast of the European mainland. The United Kingdom includes the island of Great Britain, the north-eastern part of the island of Ireland, and many smaller islands. Northern Ireland is the only part of the United Kingdom that shares a land border with another sovereign state, the Republic of Ireland. Apart from this land border, the United Kingdom is surrounded by the Atlantic Ocean, with the North Sea to the east, the English Channel to the south and the Celtic Sea to the south-west, giving it the 12th-longest coastline in the world. The Irish Sea lies between Great Britain and Ireland. With an area of 242,500 square kilometres (93,600 sq mi), the United Kingdom is the 78th-largest sovereign state in the world. It is also the 22nd-most populous country, with an estimated 66.0 million inhabitants in 2017.

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. [5] The date of the referendum was later set for 6 March. [1]

Althing unicameral parliament of Iceland

The Alþingi is the national parliament of Iceland. It is the oldest surviving parliament in the world, a claim shared by Tynwald. The Althing was founded in 930 at Þingvellir, situated approximately 45 kilometres (28 mi) east of what later became the country's capital, Reykjavík. Even after Iceland's union with Norway in 1262, the Althing still held its sessions at Þingvellir until 1800, when it was discontinued for 45 years. It was restored in 1844 and moved to Reykjavík, where it has resided ever since. The present parliament building, the Alþingishús, was built in 1881, made of hewn Icelandic stone.

Background

The liabilities of the Depositors' and Investors' Guarantee Fund arise from the 2008–2012 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".

Landsbanki company

Landsbanki, also commonly known as Landsbankinn which is now the name of the current rebuilt bank, was one of the largest Icelandic commercial banks that failed as part of the 2008–2011 Icelandic financial crisis when its subsidiary sparked the Icesave dispute. On October 7, 2008, the Icelandic Financial Supervisory Authority took control of Landsbanki and created a new bank for all the domestic operations called Nýi Landsbanki so that the domestic bank could continue to operate, the new bank continued to operate under the Landsbanki name in Iceland.

London Capital of the United Kingdom

London is the capital and largest city of both England and the United Kingdom. Standing on the River Thames in the south-east of England, at the head of its 50-mile (80 km) estuary leading to the North Sea, London has been a major settlement for two millennia. Londinium was founded by the Romans. The City of London, London's ancient core − an area of just 1.12 square miles (2.9 km2) and colloquially known as the Square Mile − retains boundaries that follow closely its medieval limits. The City of Westminster is also an Inner London borough holding city status. Greater London is governed by the Mayor of London and the London Assembly.

Amsterdam Capital city of the Netherlands and municipality

Amsterdam is the capital city and most populous municipality of the Netherlands. Its status as the capital is mandated by the Constitution of the Netherlands, although it is not the seat of the government, which is The Hague. Amsterdam has a population of 854,047 within the city proper, 1,357,675 in the urban area and 2,410,960 in the metropolitan area. The city is located in the province of North Holland in the west of the country but is not its capital, which is Haarlem. The Amsterdam metropolitan area comprises much of the northern part of the Randstad, one of the larger conurbations in Europe, which has a population of approximately 8.1 million.

At the time of the economic collapse, the Depositors' and Investors' Guarantee Fund had equity of only 10.8 billion krónur, [note 1] 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". [6] 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. [7] [8]

Icelandic króna currency

The krona is the currency of Iceland. Iceland is the second smallest country, after the Seychelles, to have its own currency and monetary policy.

Corporation separate legal entity that has been incorporated through a legislative or registration process established through legislation

A corporation is an organization, usually a group of people or a company, authorized to act as a single entity and recognized as such in law. Early incorporated entities were established by charter. Most jurisdictions now allow the creation of new corporations through registration. Corporations enjoy limited liability for their investors, which can lead to losses being externalized from investors to the government or general public, while losses to investors are generally limited to the amount of their investment.

Central Bank of Iceland Icelands central bank

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 the sole right of note issuance since 1927 and had conducted only limited monetary policy.

An outline agreement was reached on 16 November 2008, after mediation by France and the European Union. [9] 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. [9] 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.

France Republic with mainland in Europe and numerous oversea territories

France, officially the French Republic, is a country whose territory consists of metropolitan France in Western Europe and several overseas regions and territories. The metropolitan area of France extends from the Mediterranean Sea to the English Channel and the North Sea, and from the Rhine to the Atlantic Ocean. It is bordered by Belgium, Luxembourg and Germany to the northeast, Switzerland and Italy to the east, and Andorra and Spain to the south. The overseas territories include French Guiana in South America and several islands in the Atlantic, Pacific and Indian oceans. The country's 18 integral regions span a combined area of 643,801 square kilometres (248,573 sq mi) and a total population of 67.3 million. France, a sovereign state, is a unitary semi-presidential republic with its capital in Paris, the country's largest city and main cultural and commercial centre. Other major urban areas include Lyon, Marseille, Toulouse, Bordeaux, Lille and Nice.

European Union Economic and political union of European states

The European Union (EU) is a political and economic union of 28 member states that are located primarily in Europe. It has an area of 4,475,757 km2 (1,728,099 sq mi) and an estimated population of about 513 million. The EU has developed an internal single market through a standardised system of laws that apply in all member states in those matters, and only those matters, where members have agreed to act as one. EU policies aim to ensure the free movement of people, goods, services and capital within the internal market, enact legislation in justice and home affairs and maintain common policies on trade, agriculture, fisheries and regional development. For travel within the Schengen Area, passport controls have been abolished. A monetary union was established in 1999 and came into full force in 2002 and is composed of 19 EU member states which use the euro currency.

Loan agreement

Iceland finally reached bilateral agreements with the United Kingdom 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. [10] 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.

First Icesave bill

On 28 August 2009, the Althing (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. [11] 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, [12] and without a mutually agreed deal continued opposition to payment of the second tranche of the IMF loans. [13] 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). [14]

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. [15] Article 26 of the Constitution of Iceland 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. [16] By 4 January, the number of signatories had risen to 62,000. [17] 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. [18]

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. [18]

Reactions before the referendum

The Icelandic government, led by Prime Minister 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." [19]

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," [20] 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". [21] 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." [22]

Norway announced that its promised loan to Iceland would not be paid out before the national referendum has been settled. [23] The Norwegian loan is part of a €1.775bn package agreed between Iceland and the four other Nordic countries on 1 July 2009. [24]

Credit rating agency Fitch lowered its rating on Icelandic sovereign debt from BBB− to BB+ (junk-bond grade). [20] [25]

Results

Icelandic loan guarantees referendum, 2010 [26]
Choice Votes %
X mark.svg No134,39298.10
Yes 2,599 1.90
Valid votes 136,991 94.98
Invalid or blank votes 7,240 5.02
Total votes144,231100.00
Registered voters and turnout 229,926 62.73

Notes

  1. ↑ ISK8.3bn at the end of 2007 (Financial statements 2007 Archived 30 March 2014 at the National and University Library of Iceland ) plus ISK2.5bn raised in 2008 to keep within the statutory minimum (Press release Archived 22 July 2011 at the Wayback Machine .).

See also

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References

  1. 1 2 "Icesave referendum set for 6 March". BBC News. 19 January 2010. Retrieved 19 January 2010.
  2. ↑ Iceland plans vote on bank payout, BBC News, 5 January 2010.
  3. ↑ Iceland decision on bank set for referendum, RTÉ News, 5 January 2010.
  4. ↑ Declaration by the President of Iceland Archived 22 July 2011 at the Wayback Machine ., 5 January 2010.
  5. ↑ Referendum due on Icesave pay-out, BBC News, 8 January 2010.
  6. ↑ "Excerpts: Iceland's Oddsson". Wall Street Journal. 17 October 2008. Retrieved 26 October 2008.
  7. ↑ Alistair Darling (8 October 2008). "Statement by the Chancellor on financial stability". HM Treasury. Archived from the original on 11 October 2008. Retrieved 18 October 2008.
  8. ↑ The Landsbanki Freezing Order 2008 Archived 12 December 2008 at the Wayback Machine . No. 2668.
  9. 1 2 "Agreed Guidelines Reached on Deposit Guarantees". Prime Minister's Office. 16 November 2008.
  10. ↑ Iceland, the UK and Netherlands Agree on Icesave, Iceland Review, 8 June 2009.
  11. ↑ Valdimarsson, Omar (28 August 2009), Iceland parliament approves debt bill, Reuters.
  12. ↑ British and Dutch stance on Icesave hardening, Icenews, 28 September 2009.
  13. ↑ PM: Iceland cannot wait much longer for IMF payout, Icenews, 29 September 2009.
  14. ↑ Icesave legislation passed by Althingi in Iceland, Iceland Review, 31 December 2009.
  15. ↑ News flash: Iceland President did not sign Icesave into Law this Morning, Iceland Review, 31 December 2009.
  16. ↑ Icesave Pressure Increasing on Iceland's President, Iceland Review, 2 January 2010.
  17. ↑ Iceland Still Awaits President's Icesave Decision, Iceland Review, 4 January 2010.
  18. 1 2 President of Iceland Vetoes Icesave Legislation, Iceland Review, 5 January 2010
  19. ↑ The Government committed to the Economic Program, Prime Minister's Office, 5 January 2010.
  20. 1 2 Iceland leader vetoes bank repayments bill, BBC News, 5 January 2010.
  21. ↑ "Bos uitblijven oplossing Icesave onaanvaardbaar", De Volkskrant, 5 January 2010. (in Dutch)
  22. ↑ "British fury after Iceland blocks £2.3bn repayment", The Independent, 6 January 2010.
  23. ↑ Iceland president's Icesave decision drawing harsh international response, IceNews, 6 January 2010
  24. ↑ Background information on Nordic loans to Iceland, Ministry of Finance, 3 July 2009
  25. ↑ Lagere waardering IJsland, nu.nl, 5 January 2010. (in Dutch)
  26. ↑ "Results for referendum 6 March 2010 by Category and Sex". Statistics Iceland. 18 May 2010. Retrieved 12 April 2011.
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