Icelandic President Olafur Ragnar Grimsson's decision to veto a bill on repaying losses from the Icesave collapse has paved the way for a referendum, prompting Moody's to warn that a "No" vote would downgrade Iceland's ratings.
AFP - President Olafur Ragnar Grimsson's decision to veto a new bill on Icesave that had passed parliament with a large majority has sent shockwaves through Iceland, where many thought the painful issue was finally coming to a close.
"This president's decision to put Icesave to a referendum will cause a stalling in the economy, the state's ability to raise finance will worsen and unemployment will increase," Gudmundur Olafsson, an economics professor at the University of Iceland told AFP.
Icelandic negotiators have been struggling for more than two years to reach an acceptable deal on how to repay Britain and the Netherlands for the 3.9 billion euros ($5.3 billion) they spent compensating around 340,000 of their citizens hit by the collapse of online bank Icesave in October 2008 at the height of the financial crisis.
The latest deal, considered much more favourable to Iceland than previous versions, was agreed upon in December and voted through by nearly 70 percent of Iceland's parliamentarians.
The deal, which would allow Iceland to repay very gradually until 2046 at a 3.0 to 3.3-percent interest rate, only needed the president's stamp of approval before being turned into law.
Instead, Grimsson on Sunday said he would again put the bill to a referendum as he had with the initial version in early 2010.
The first time however, the wildly unpopular bill, which called for full repayment by 2026 at a 5.5-percent interest rate, was rejected by 93.2 percent of voters.
This time around, few expect London or The Hague to sit down again if the vote is 'No' again, meaning the case could end up in a European Free Trade Association (EFTA) court.
At the end of the day, the bill "could be much steeper for the Icelandic tax-payer," Olafur Stephensen, the chief editor of the Frettabladid daily, wrote in an editorial after Grimsson's decision.
The president's move has also raised questions about the role he plays and the powers he enjoys -- Why oppose a deal that has majority backing in the popularly elected parliament?
According to the Icelandic constitution, the president's role is largely symbolic but Article 26 does provide the head of state with the right to put any law voted through parliament to a popular vote if he sees fit.
Grimsson acknowledged Sunday that "these (Icesave) contracts are different from the last ones that were put to the nation," but insisted "it is important that the nation again will get its say."
According to political scientist Stefania Oskarsdottir, the president's reasoning "was that ... if the majority in Parliament is opposed to the will of the majority of the nation, the president should listen to the nation."
Although Icelanders have appeared far more favourable to the latest deal, with a poll Monday showing 58 percent in favour, voices have also been raised against it.
A petition signed by some 37,500 of Iceland's nearly 320,000 inhabitants called on Grimsson to call a referendum on the issue and Monday's poll showed 61 percent of those questioned were happy to get a chance to again have their say on the matter.
"His reasons are logical ... He believes he needs to represent the will of the people," Oskarsdottir said.
Finance Minister Steingrimur Sigfusson said he was "shocked and surprised" by Grimsson's decision while economist Olafsson went so far as to question the democratic intentions of "a president who supports the minority rather than the majority."
Grimsson's second veto in just over a year of a deal approved by parliament has prompted some speculation on whether the house and leftwing government could be facing a crisis of confidence.
Oskarsdottir however said she did not think the decision would impact the political leadership, pointing out that "last year the government stayed after the president put Icesave ... to a referendum."
She said she expected the bill to pass the popular vote this time but "should this Icesave agreement be rejected by the nation, maybe then, and only then, should the ruling government have to look at its internal structure and possibly call for an election."
Date created : 2011-02-24