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Iceland financial crisis: Voters reject debt repayment plan

In a nationwide referendum Saturday, more than 90 percent of voters have resoundingly rejected a $5.3 billion plan to pay off Britain and the Netherlands for debts spawned by the Iceland financial crisis.

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Demonstrators in Reykjavik, Iceland, held signs Saturday as voters lined up to cast ballots in a referendum on whether to support a $5.3 billion plan to pay off Britain and the Netherlands for debts incurred during Iceland's financial crisis.

Bob Strong/Reuters

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After more than a year of watching helplessly as the Iceland financial crisis caused their government to collapse and their economy to crumble, many Icelanders woke up Sunday feeling that they finally had something to celebrate.

With more than 98 percent of the ballots from Saturday’s nationwide referendum counted, more than 90 percent of voters have resoundingly rejected a $5.3 billion plan to pay off Britain and the Netherlands for debts spawned by the collapse of an Icelandic Internet bank.

But while the poll may at last have delivered a sense of empowerment for some of the 316,000 inhabitants of a country regarded as Europe’s worst casualty of the 2008 financial crisis, others are waiting to see if the result might even jeopardize its fragile recovery.

“Usually referendums and elections give politicians guidance for where to go next,” said Prof. Thórólfur Matthíasson, an economist at the University of Iceland. “This referendum does not help much.”

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Voters not worried about IMF, EU

On the basis of results coming in Sunday, many voters appear to have paid little heed to warnings that without the debt repayment agreement, Iceland will be unable to raise loans from the International Monetary Fund (IMF) or succeed in a bid for fast-track membership of the European Union.

On the other hand, a large portion of voters viewed the deal as an unfair result of their own government's failure to curtail the recklessness of a handful of bank executives, including those who expanded operations to seduce British and Dutch customers with generous returns from online savings.

Some, including members of the smaller Left-Green party in Iceland’s ruling coalition, have even sought to portray the referendum as vote for a Plan B for the country to go it alone without IMF support.

However, many voters are thought to have been motivated more by opposition to the tough terms of the deal imposed by Britain and the Netherlands, rather than the idea of repayment itself.

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$135 a month for eight years

As it stands, the deal would apparently require each Icelander to pay around $135 a month for eight years – the equivalent of a quarter of an average four-member family's salary.

Such a burden is even harder in a small country where unemployment has surged to about 9 percent in January, inflation is running at about 7 percent annually, and the economy continues to shrink following the 2008 financial crisis.

Despite the potentially grave repercussions of Saturday’s vote, which in the short term could jeopardize Iceland's credit ratings, the message coming from the government was for calm.

Government appeals for calm

"This result is no surprise," said Prime Minister Johanna Sigurdardottir, whose government is hopeful of reaching more favorable terms with Britain and the Netherlands for the repayment of the debts stemming from when the two larger countries’ stepped in to guarantee deposits their citizens held in the failed Icelandic internet bank, Icesave. "Now we need to get on with the task in front of us, namely to finish the negotiations with the Dutch and the British.”

There was little immediate reaction Sunday from London and The Hague, apart from an insistence by the British government that it was committed to getting its $3.5 billion back.

Speculation is rife though that a new agreement will be unveiled in weeks, and that the British and Dutch have already offered less stringent repayment terms.

Indeed, Professor Matthíasson points out that the overwhelming "no" vote has to be seen in the context of the ongoing talks.

“The Dutch and the UK have said that they would continue with negotiations after the referendum as if it had not happened,” he added. “The implication of that declaration is that people could vote ‘no’ without having to think of any bad consequences. And so they did. Will the referendum have a lasting impact economically? It depends on if the UK and the Netherlands choose to make a fuss about it or not.”

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