Despite 'No' Vote, Britain Expects Iceland To Pay Voters in Iceland have rejected a referendum that planned to spend billions of dollars to repay Britain and the Netherlands for debts spawned by the collapse of an Icelandic bank. Britain's treasury secretary said he expects to get back several billion dollars that Iceland owes, but he admitted it could take many years.

Despite 'No' Vote, Britain Expects Iceland To Pay

Despite 'No' Vote, Britain Expects Iceland To Pay

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An estimated 1,000 people marched through the streets of Reykjavik on Saturday to protest a plan to compensate the British and Dutch governments because of the collapse of an Icelandic bank. Rob Gifford/NPR hide caption

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Rob Gifford/NPR

An estimated 1,000 people marched through the streets of Reykjavik on Saturday to protest a plan to compensate the British and Dutch governments because of the collapse of an Icelandic bank.

Rob Gifford/NPR

British Treasury Secretary Alistair Darling has said he expects to get back all the money he believes Iceland owes Britain, but he admitted that it could take many years.

His comments came in an interview on Sunday after the people of Iceland voted Saturday in a referendum against a plan to pay back the British and Dutch governments. Britain and the Netherlands compensated savers in their countries $5 billion when the Icelandic bank Icesave collapsed in October 2008.

Despite their fierce Viking roots, the Icelanders are traditionally a peaceful people. But in recent months they have been more vociferous in their anger against the government and against the solutions proposed to resolve the dispute with Britain and the Netherlands.

One example is Ludwig Ludwigson, a young man in a smart raincoat, who on Saturday stood on the back of a truck in the center of Reykjavik conducting a mock auction. The house he was auctioning is one of the grandest mansions in the city, owned by the man who owned Icesave, the bank whose crash brought Iceland to its knees.

"What am I bid for this house," Ludwigson shouted through a loudspeaker, and the small crowd, getting into the spirit, shouted out bids, starting with one Icelandic krona.

"It's just symbolic," Ludwigson said after the mock auction, sheltering from the freezing rain, "We are 'selling' this house but we don't really own it."

"This is just a little payment for the nation," Ludwigson continued. The banker "put all those debts on the Icelandic nation; now we want to point the people towards the criminals. "

Ludwigson headed off to vote in the referendum saying he would vote no. In the end, 93 percent of people opposed the plan, which the government had approved last year.

The referendum, which constitutionally had to take place when Iceland's president surprised everyone by rejecting the payback plan in January, has proved a lightning rod for many grievances.

"Icelanders feel they've been bullied," says Silja Omarsdottir of the University of Iceland. "They feel like they have been forced into an impossible situation, and they are asking: 'Why is the debt of private corporations being socialized? Why is the public being made to pay for the mistakes of private corporations?' "

And that's the sticking point: Icelandic taxpayers are being asked to compensate foreign savers in the U.K. and the Netherlands. In the decade leading up to 2008, the banking sector of this island of just 330,000 people expanded faster than the regulatory framework it needed. So when Icesave went belly up, the Icelandic government's deposit insurance scheme couldn't cover the losses abroad, putting the Icelandic taxpayer on the hook for $5 billion. Somebody did the math recently and it worked out to $135 per Icelander per month for the next eight years.

So the normally peaceful Icelanders have taken to the streets. On Saturday about a thousand people marched through Reykjavik. Bjorn Haraldson marched with his wife under a sea of Icelandic flags and banners opposing the payback plan.

"Icelanders pay their bills," Haraldson said. "But when you get a false bill, you have to think about it twice. Such bills should be made to banks, not to individuals on the street."

Independent observers say that Icelanders may be pleased they've made their point, but it's something of a Pyrrhic victory. In spite of the referendum, they will have to pay. Iceland's government is trying to negotiate better terms of repayment.

Meanwhile, the Icelandic economy shrank by 7 percent last year and is expected to shrink by 3 percent this year.

Iceland's hoped-for membership in the European Union could be in jeopardy. And if that weren't enough, the IMF has said the country's much needed loans cannot go through, until the Icesave compensation is resolved.