Sigrún Davíðsdóttir's Icelog

The outcome of the referendum on Icesave didn’t come as a surprise – but how to interprete the ‘no’? It doesn’t give much meaning claiming it’s only a ‘no’ to an agreement that is already obsolete in the sense that the Dutch and the English have been offering better terms in negotiations up to the referendum. But does the ‘no’ mean that Icelanders want better terms and conditions? Or is it a ‘no’ to paying so much as a krona? And if Icelanders don’t want to pay is it because they think they can’t afford it – or because they aren’t happy paying the bankers’ debt?

There is of course no way to gauge the exact meaning of ‘no’ but a poll, published in Iceland today, gives an indication: 60 percent claim that Icelanders have no responsibility to pay for Icesave, 37 percent that they are responsible to pay some of the debt and 3 percent think Icelanders should pay up. The question was: ‘Should Icelanders be responsible for paying back Icesave-depositors in the UK and the Netherlands?’ Since the question doesn’t specify the EU deposit insurance of €20.000 the outcome isn’t crystal clear but certainly an indication of the mood in Iceland.

The referendum doesn’t seem to have had any effect on the Dutch and the British negotiators who saw it as a domestic issue in Iceland. If Icelanders thought it would put pressure on the negotiators there is yet no sign of a referendum effect. Standard & Poor hasn’t changed the outlook on Iceland since the ‘no’ was expected.

Chancellor of the Exchequer Alistair Darling said yesterday in an interview on the BBC’s Politics Show that Icelanders should pay their share of the Icesave deposits but equally the UK should be reasonable. It was in no one’s interest to isolate Iceland.

Today’s leading article in the Independent states that Icelanders deserve empathy, not bullying, in difficult times. Bankers, not the population, were to blame for the financial meltdown. ‘Of course, sympathy should not be overdone. Icelanders did very well in the years of the banking boom, when living standards soared. And there was a gross political failure of regulation, too. The former Icelandic government gave free rein to its banks to snap up vast assets abroad financed by irresponsible levels of borrowing. It is galling to see Iceland’s right-wing opposition – which was responsible for presiding over that boom and bust when in office – now leading a populist revolt against the terms of repayment.’

It is indeed difficult for Iceland to claim it’s too poor to repay its debt – though some economists maintain that high interest rates on the loan could jeopardise the whole economy in the coming years. The irony is that many Icelanders feel angry that ‘viking raiders’ who sailed the sea of cheap money, leave a trail of bankrupt companies and yet manage to hold onto their most valuable assets – and yet, Icelanders who say that Iceland shouldn’t repay the Icesave debt seem to want Iceland to deal with its debt the way the ‘viking raiders’ do: just ignore it.

But what now? Will prime minister Gordon Brown listen to the president of Iceland who, in a BBC interview yesterday, challenged Brown to show leadership and find an acceptable solution? Maybe – but it’s unlikely. A solution that’s acceptable to the president might not be one that Brown will contemplate. The president hopes that a solution, based on negotiations the last weeks, will be found. But the British and the Dutch negotiators feel that it’s up to the Icelanders to make up their mind, not the other way around.

For the time being the British and the Dutch only offer to negotiate two variables of the Icesave equation: the interest rates and an interest free break. According to my sources, the Icelanders have been unwilling to accept to debate only these two things. The Dutch and the British also feel that now the opposition is at the table, negotiations are more difficult. There seem to be those who simply don’t want to find an agreement.

Some of the Icelandic negotiators might think that the best strategy is being stubborn and obstinate – to wait and see if better offers will be put on the table. This was a much used tactic during the ‘Cod Wars’, as Iceland extended their fishing limits, first from 4 to 12 miles and later to 50 miles. These disputes took three years each time, 1958-1961 and 1970-1973 – and both times Iceland was victorious.

At the heart of these disputes over were international principles. Though Iceland would have preferred to discuss Icesave as a principle – were the EU directives on deposit guarantees clear or not – the Dutch and the British couldn’t be dragged in that direction. Neither is there an interest within the EU. The directives on European banks operating in other EU countries will no doubt be clarified at some point but hardly made retroactive. Both British and Dutch Icesave depositors have been compensated. Icesave isn’t of any general interest in these two countries and consequently no political pressure to solve the issue.

There is no lack of empathy from abroad, plenty of pundits who have expressed sympathy for Iceland, either that they shouldn’t pay or should get better terms. However, Scandinavian politicians show tough love. Sweden’s prime minister Frederik Reinfeldt said after the referendum that though bitter for Iceland to pay debt accrued by bankers pay it had, none the less. The same has been heard from Finland, Denmark and Norway.

In Iceland, the role of Iceland’s president is a hotly debated side issue to Icesave. Previous presidents have never shown any inclination to share the political limelight. President Olafur Ragnar Grimsson had no qualms about wading right into the centre of the political arena when he refused to sign the Icesave bill, passed through parliament over Christmas. Many saw Grimsson’s move as an attempt to woo the nation after falling from grace because of his earlier intimate relationship with bankers and ‘viking raiders’

The president has criticised the Scandinavian governments for siding with Iceland’s arch enemies against Iceland. Now the Norwegian minister of foreign affairs, Jonas Gahr Støre, felt he had to teach the president a constitutional lesson, saying that the president misunderstood the situation: Iceland had to honour its international obligations and the president had no part in the debate. – It now seems that parliament can’t avoid to clarify the constitutional ambiguity has of the president’s role.

Icelanders often see their national characteristic as being stubborn and obstinate like sheep. Though it played into their hand to wait and see during the ‘Cod wars’ it might not seem a strong tactic now that the price of waiting seems to be negligible for the ‘arch enemies’ but high for themselves.

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