Global Economics

Icelanders Against Icesave Compensation


Icelanders protest against a proposal to compensate clients, including Dutch and British investors in Landsbanki's online bank, Icesave, which went bust last year

The bank-crisss in Iceland land last autumn has cast long shadows. Almost one year after Iceland's banks collapsed, the affair threatens to unseat the government and kick the country's EU bid into the long grass.

Over 3,000 Icelanders demonstrated outside parliament, the Althingi, on Thursday (13 August) against a proposal to compensate clients of the online Icesave bank for money lost when it went bust last year.

Icesave was Landsbanki's online savings unit in the UK and the Netherlands and attracted over 320,000 British and Dutch savers with high interest rates.

When Landsbanki was nationalised in October 2008, the Icesave deposits were lost but only domestic clients' savings were guaranteed, creating anger in the UK and the Netherlands.

In June, the Icelandic government agreed with London and The Hague that Iceland would be provided with loans to compensate the foreign Icesave account holders to a certain extent.

But there is still one major problem. A large majority of the people of Iceland do not agree to the package for British and Dutch savers, who took advantage of the higher interest rates in Icesave before the bank collapsed.

To pay the bill Iceland needs to take a loan of almost €4 billion euro from the British and Dutch governments – close to €13,300 per Icelander.

One speaker at Thursday's protest, author Einar Gudmundsson, said Icelanders were being punished for the deeds of a private company. "A crime we as a nation had nothing to do with," he said, according to Reuters.

Iceland's prime minister Johanna Sigurdardottir, writes in an article published in the Financial Times that her government plans a 30 percent cut in public spending over the next three years to meet the obligations.

It is "a heavy burden for our population of 300,000" people, she adds in the article.

"Icelanders...are angry at having to take on the burden of compensation for the Icesave savings accounts of Landsbanki – a failed, privately owned, commercial bank, which attracted hundreds of thousands of UK and Dutch savers with high interest rates. The amount to be shouldered by Iceland is huge – about 50 percent of our gross domestic product."

The centre-right opposition party, The Independence Party has threatened to bring down the left-leaning government over the issue.

If they are succesful, Iceland's EU application as well as loans from the IMF needed to restore the country's economy could run into trouble. The Indepence Party is traditionally opposed to EU membership, while the promise of IMF loans is linked to the Icesave deal.

Public support for membership of the EU has fallen over the summer with a majority of 48.5 percent opposed to entering the EU against 34.7 percent in favour, the latest poll published on 5 August showed.

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