Voters in Iceland have once again voted to reject a repayment program negotiated by their government to reimburse the United Kingdom (U.K.) and the Netherlands for losses incurred by their citizens when Iceland’s banking sector collapsed in 2008. The governments of the U.K. and the Netherlands reimbursed their citizens when Iceland’s deposit-insurance program ran out of money to cover losses from an Icelandic Internet bank called Icesave. Iceland’s voters had overwhelmingly rejected a repayment program back in 2010 and Iceland sought to negotiate better re-payment terms. The margin of defeat for the current reimbursement program was notably smaller than the 2010 referendum—93% rejected the referendum in 2010, but only 60% of the voters rejected the referendum this weekend. Many in Iceland believe it is not the responsibility of taxpayers to pay for the risky actions of failed private companies. The rejection is likely to complicate Iceland’s bid to join the European Union (EU) and the U.K. and the Netherlands are likely to turn to litigation rather than more rounds of negotiation to address the dispute. Iceland is a member of the European Economic Area and is required to follow EU financial directives, including the requirement to maintain deposit-insurance systems.
QUESTIONS FOR DISCUSSION:
- Analyze the advantages and disadvantages for Iceland of the second failed referendum.
- The U.K. and the Netherlands appear to be resigned to pursuing litigation rather than continuing to re-negotiate with Iceland. Given that the margin of defeat was dramatically smaller for this referendum compared to the first, is litigation the best path for addressing the dispute?
- The U.K. is seeking £2.35 billion and the Netherlands is seeking €1.32 billion from Iceland. Even though the proceeds from the sale of the defunct bank will be used toward reimbursing the U.K. and the Netherlands, is it reasonable to expect Iceland’s 320,000 citizens to share the burden of the collapse of the nation’s banking system?
SOURCE: Forelle, C. (2011, April 11). Icelanders reject deal to repay U.K., Netherlands. Wall Street Journal Online. (Retrievable online at: http://online.wsj.com/article/SB10001424052748704641604576254661016938274.html)
Related video clip: Voters in Iceland Reject Bank Collapse Compensation Deal. (Retrievable online at: http://www.bbc.co.uk/news/business-13028090)