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Europe

PM wants central bank reform, asks governors to resign

Latest update : 2009-02-03

Iceland's new female premier, Johanna Sigurdardottir, has announced that she will seek a change in the law to allow for only one governor for the country's central bank. This comes after she asked the three current governors to resign.

AFP - Iceland's new prime minister on Monday asked the country's three central bank governors to tender their resignations in the wake of the country's economic meltdown, she said in an interview.
  
"I have requested that they resign immediately and enter discussions on their departure," Prime Minister Johanna Sigurdardottir said in a televised interview on Iceland National Radio.
  
"I sent them a letter this afternoon," she added.
  
Many Icelanders have held central bank chief David Oddsson, 61, particularly responsible for the economic crisis, with mounting public protests in recent months calling for his dismissal.
  
Oddsson liberalised Iceland's financial markets in the 1990s when he served as prime minister.
  
A lawyer by training, he has served as central bank chief since 2005.
  
The two other governors are Eirikur Gudnason and Ingimundur Fridriksson. There was no immediate reaction from the trio on Monday.
  
Sigurdardottir, whose left-wing government took power on Sunday after former prime minister Geir Haarde's left-right coalition collapsed over its handling of the crisis, said her first task as prime minister was to prepare a bill on reorganising the central bank.
  
"We have to regain international trust. That is crucial," she said.
  
A bill will be submitted to parliament proposing a single central bank governor instead of three, among other things, and the central bank's supervisory board will also be replaced, Sigurdardottir said.
  
A change in the law governing the structure of the central bank means that even though Sigurdardottir has only requested the governors' resignations, they will have little choice but to go.
  
Even if they were to refuse to resign, the proposed law stipulates that there be only one governor of the bank, to be hired based on his economic expertise and not a political appointment as was the case with Oddsson.
  
"According to the bill, there will be one professionally hired governor of the central bank. I announced to all of the governors of the central bank today that it is the will of the government to put this bill before parliament," she said.
  
But questions have arisen in Iceland about whether the government has the right to sack the governors, since the central bank is an independent body that functions under the prime ministry.
  
Margret Vala Kristjansdottir, an assistant professor of law at Reykjavik University, told news site Visir recently that if the governors are considered employees of the state, they can either be dismissed after receiving a reprimand, or, if the dismissal is due to organisational changes, "reprimands are not necessary."

 

 
Protests in recent months had grown increasingly violent over the devastating impact of the global economic crisis.
  
Thousands of Icelanders lost their savings and jobs after the country's once-booming financial sector crumbled in October, with Reykjavik forced to nationalise its major banks as the country's currency lost half its value in 2008.
  
A country of just 320,000 people, Iceland was until the crisis one of the most prosperous members of the Organisation for Economic Co-operation and Development.
  
Over the past decade, it posted average annual growth of four percent, peaking at 7.7 percent in 2004. In 2007, it registered growth of 4.9 percent.
  
But the Icelandic economy is now expected to shrink by 9.6 percent this year, while unemployment -- once almost unknown in Iceland -- is seen reaching 7.8 percent in 2009 and 8.6 percent in 2010.
  
In November, Iceland became the first western European country to be rescued by the International Monetary Fund since Britain in 1976, receiving a 2.1-billion-dollar (1.64-billion-euro) loan from the international body, on top of a 2.5-billion-dollar loan from Nordic neighbours Denmark, Finland, Norway and Sweden.

Date created : 2009-02-03

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