New Icesave deal goes before the public

For
the second time, Iceland’s president vetoed a bid by the island nation’s
Parliament to repay the U.K. and the Netherlands more than $5 billion lost by
depositors in Iceland’s epic 2008 banking collapse—sending the matter to a
referendum by a deeply sceptical public and complicating the country’s application
to join the European Union.

The
dispute over Icesave—the online arm of a failed Iceland bank that took deposits
from British and Dutch savers—has percolated for more than two years,
reflecting the Icelandic people’s dissatisfaction with paying the price for
what is almost universally regarded as the hubris of a few bankers.

The
British and the Dutch governments stepped in, in 2008 to compensate depositors
in their countries who had placed money with Icesave, since Iceland’s tiny
deposit-insurance program was woefully short of cash. The two nations soon demanded
their money back—about $3.8 billion for the U.K. and $1.8 billion for the
Netherlands.

The
total amounts to about half a year’s economic output.

A
first attempt at a repayment deal in 2009 faced stiff opposition in the Icelandic
parliament. A modified bill passed later that year, but President Ólafur Ragnar
Grímsson vetoed it in early 2010, triggering a referendum, which failed.

The
new deal carries substantially better terms—Iceland has until 2046 to repay, at
an interest rate of about 3 per cent—but Mr. Grímsson said in a statement
issued that the Icesave issue is so weighty and so contested that it wasn’t up
to Parliament to decide.

The
presidential veto is rare.

It
has now been used just three times since Iceland’s independence from Denmark in
1944.

If
history is a guide, the deal once again faces nearly certain defeat. In the
first plebiscite, 93.2 per cent of voters, or 134,392, rejected the bill.

 Just 2,599 picked “yes,” badly
trailing even the 6,744 who left their ballots blank.