A referendum on the so-called ‘Icesave Agreement’ was held in Iceland on Saturday, 9 April. The referendum concerns the validity of Act No. 13/2011, which authorised the Minister of Finance to sign the agreements on “the guarantee of (a) reimbursement from the Depositors’ and Investors’ Guarantee Fund to the United Kingdom and the Netherlands of costs resulting from the payment of minimum guarantees to depositors in branches of Landsbanki Íslands hf. in the United Kingdom and the Netherlands, and (b) payment of remaining balance and interest on these commitments”.
(Icelandic government press release) Although the Act was adopted by 44 of 63 members of the Icelandic parliament Althingi on 16 February 2011, the President of Iceland refused to sign the bill into law on 20 February 2011, referring its validity to a referendum.
The result of the referendum is now clear, the Act has been rejected by the majority of the voters and is therefore repealed. The turnout of the referendum was high and close to 40% voted for and 60% voted against the law.
The Government of Iceland will do all in its power to secure that the referendum outcome will not have a major impact on Iceland´s economic programme and the fiscal consolidation plan which it has been pursuing with a high degree of success.
The referendum outcome calls not for a readjustment but for a reassessment of macroeconomic assumptions; economic and fiscal plans will now be reviewed so as to take into account the consequences of the referendum outcome. A revised prognosis and budget figures will be available no later than in early May.
The Government further remains committed to the economic programme supported by the IMF, which has been progressing soundly. The next review of the programme by the IMF Executive Board, which is scheduled to take place on April 27th, will be delayed by some weeks. Given the current size of its foreign reserves, Iceland will have no difficulty covering its external maturities in the coming years (including EUR 870 million maturing in 2011 and 2012)
The outcome of the referendum will not affect the commencement of payments by the estate of Landsbanki Íslands hf. to priority claimants (including the British and Dutch authorities), where partial payments are scheduled to take place later this year. These partial payments are expected to cover close to a third of priority (depositor) claims. Moreover, latest figures on its assets indicate that the estate will be able to pay over 90% of claims for deposits.
On 26 May 2010, the EFTA Surveillance Authority ( ESA), initiated infringement proceedings against Iceland, claiming that Iceland is under an obligation under Directive 94/19 on deposit guarantee schemes to ensure that each depositor does receive the payment foreseen by the Directive in terms of a guarantee for the deposit by issuing a letter of formal notice to the Government. The process had not advanced much, as the outcome of the negotiations and later the referendum were awaited, as a positive vote would have made the legal issue immaterial. Following the no vote of the referendum, the Government will proceed to submit its observations, in line with the strong will of the people of Iceland expressed in the vote. ESA can ultimately bring the matter before the EFTA Court. The average duration of court proceedings before the the EFTA Court is one year.
The Icelandic Government has sought to resolve the Icesave dispute all along in good faith and through negotiations with the British and the Dutch Governments.
The outcome of the referendum can however only be interpreted to the effect that the Icelandic people will not accept a deal requiring Iceland to cover costs related to the Icesave deposit insurance guarantees, unless the legal obligation for doing so is clear.
The Government will emphasize maintaining economic and financial stability in Iceland, and continuing along the path of reconstruction which it began following the economic collapse of 2008. Significant and indisputable progress has been made towards this end.