It might seem like small change to the bankers of Britain or the United States, but the money at the centre of the Icesave crisis is threatening Iceland’s very economic recovery.
The government convened an emergency meeting with union leaders to explore the impact the crisis would have on their stability pact. That is a deal to put the brakes on pay rises and create public sector jobs. But it is heavily reliant on a flow of foreign capital – and that is what the Icesave fiasco is jeopardising.
Iceland is waiting for 1.8 billion euros in loans.
But the financial rating agency Fitch was quick to downgrade the island’s creditworthiness when the president refused to sign into law the bill that would have allowed the repayment of Icesave’s debts.
The Prime Minister Johanna Sigurdardottir said:
“In a declaration to the IMF regarding the economic plan from November 2008 it is stated that Icesave will be settled with agreement. This statement was a basic condition for loans from the IMF and Nordic countries. Without those loans the Icelandic economic plan is uncertain.”
Last week, the Icelandic parliament narrowly approved an amendment to a law to reimburse the British and Dutch governments which had guaranteed savers’ deposits when the online bank Icesave collapsed in autumn 2008.
In global banking terms, the 3.8 billion euros at stake is chicken-feed, but it represents 40 percent of Iceland’s gross domestic product, and that equates to a 12,500 euro bill for every citizen.
And so, almost a quarter of Iceland’s 240,000 voters signed a petition demanding their President leave his signature off the bill.
And he bowed to their wishes, forcing a referendum on the issue under the terms of the Icelandic constitution.
He did it despite the risk of enraging Britain and the Netherlands, and raising a possible obstacle to Iceland’s future EU membership.
But President Olafur Grimsson said: “The British and the Dutch are among the oldest democracies in Europe. And as such must have deep respect for the democratic right of a nation as demonstrated in national referenda, which, by the way, have taken place in the Netherlands and other EU countries.”
But Iceland’s EU application will need support from members like Britain and the Netherlands. The referendum could turn out to be a vote not only on money, but on EU membership itself.