The people of Iceland voted overwhelmingly against a plan to compensate the British and Dutch governments to the tune of about $5 billion Saturday. The referendum followed a lengthy grass-roots campaign against paying debts racked up by Iceland's bankers just before the Great Recession.
Demonstrators wielding fireworks and whistles took to the streets of Reykjavik Saturday. Iceland had one of the biggest booms of the boom years as its economy moved from fishing to banking, but now it's having one of the biggest busts. Many demonstrators had lost their homes or seen their mortgage payments double in recent months. They blamed the bankers.
"We are not going to pay the debts for those bankers," demonstrator Svenbjorn Arnason said. "They have given their debts to us, the people of Iceland."
"It's not fair for you and your children to pay $10 million for some crazy people who are just eating gold," fellow demonstrator Grimur Gunarson added, referring to a story widely reported in Iceland that one of the bankers who brought Iceland to its knees ate flakes of pure gold sprinkled into a risotto.
Iceland's Prime Minister Johanna Sigurdardottir put a brave face on the defeat, saying the referendum was unnecessary as a new payback deal with the British and Dutch was already being negotiated.
Several Icelandic banks collapsed in the fall of 2008, most notably an Internet bank called Icesave, which offered high interest rates and was especially popular in Britain and the Netherlands. When Icesave collapsed, the British and the Dutch governments compensated their angry savers to prevent riots on their own streets, but then billed Iceland for that compensation. The government in Reykjavik agreed to pay, prompting a citizen's rebellion that culminated in Saturday's referendum — the first in Iceland's modern history.
"What you are seeing here is an outcome of 97 percent in some districts — 98 percent in others — voting no," lawyer Eirigur Svavarsson said as he crowded with his friends on a couch to watch the coverage of the referendum on the nightly news. Svavarsson and his friend Magnus Arni Skulason head a group opposed to the payback plan. As the results came in on Saturday night, they were thrilled.
"Democracy is a strong tool," Skulason said. "We are saying this is an unreasonable agreement and we want a new agreement."
Svavarsson and Skulason say the defeated deal would have required each Icelandic person to pay around $135 a month for the next eight years. They claim a renegotiated settlement would help Iceland recover faster from recession.
But some observers say the referendum was not just about the economics of the situation; it was an emotional movement to re-assert the will of the Icelandic people.
That emotion could backfire; the rejection of the plan may actually create another obstacle to economic recovery. Until the payback issue is resolved, many countries committed to helping Iceland through the IMF are withholding funds.
"We're not getting the money through the IMF that we need to repay other debts and keep ourselves afloat," says Silja Bara Omasdottir, a political scientist at the University of Iceland. "Sometime in the next 18 months we are going to need to get money in order not to go into sovereign default."
In the meantime, Iceland struggles on. The possibilities of a worse credit rating and more difficulty entering the European Union are apparently a price worth paying for the moral victory of the referendum. Anyway, after all the economic problems the EU has had lately, membership seems much less attractive to many Icelanders these days.