Icelanders Don’t Like Being Pushed Around

from ChaoticFate.com by qew

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Those in London who are now scratching their heads about how Icelanders could reject the new and improved Icesave deal should cast their minds back to October 2008 when Gordon Brown’s government invoked anti-terrorist legislation to freeze the U.K. assets of Landsbanki Islands—the bank behind Icesave.

In doing so, London moved the Icesave debate from a question of economics to a question of national identity and stymied any chance of a negotiated agreement from day one, says Eirikur Bergmann, a political scientist at Bifrost University, Iceland.

“A key aspect of the Icelandic national psyche is not giving into foreign pressure…and when the U.K. authorities used the anti-terrorist legislation they put the Icesave issue in that political field and the [Icelandic] government was never able to lift it out,” Mr. Bergmann says.

The new deal Icelanders rejected at the weekend offered much better terms of repayment than a deal proposed last year—which was also rejected by a referendum. But both packages were destined to fail from the moment the president decided to put them to a public vote.

Icelanders feel Gordon Brown’s government wrecked any chance of a settlement when it chose to play hard ball. These people, after all, have managed to eek out a living on a windswept lava field in the North Atlantic for hundreds of years without much bother.

Those forecasting and hoping for a “yes” vote to back the deal, including most of the Icelandic government, had pragmatically looked on the new settlement as a bitter pill that had to be swallowed.

By agreeing to its terms, debated over months of painful negotiation, Iceland could put the whole Icesave mess behind it.

The idea was that they could then look forward to: improved sovereign ratings; fast track European Union membership and a gradual exit from strict capital controls imposed to shore up a plummeting krona during the financial crisis.

Instead, the quietly seething Icelandic population has taken a chance to lodge a protest against the heavy-handed attitude of the U.K. government, even though Mr. Brown’s team has already been voted out by Britain’s electorate.

Some €4 billion was deposited by British and Dutch savers in the bank before Icesave’s operator, Landsbanki Islands, collapsed along with the rest of Iceland’s big banks in October 2008.

Nearly 60% of 175,000 voters rejected a plan to compensate the British and the Dutch governments, who had stepped in to pay their own Icesave depositors when Iceland’s deposit-insurance scheme ran out of money.

Fitch Ratings said Monday that the “no” vote had reduced Iceland’s chances of improving its junk status rating, and is likely to make future borrowing by the state on international markets more expensive.

Meanwhile, on the political front, Iceland’s negotiations for European Union membership—widely backed by the population—could be vetoed at any point by the British or Dutch.

Legally, Iceland will in all likelihood find itself in front of the European Free Trade Association court for not living up to a requirement that, as a member of the European Economic Area, the country should maintain a deposit-insurance system for savers in its banks.