Iceland voters reject debt deal

REYKJAVIK, Iceland – Still furious over the crippling aftermath of the global financial crisis, Iceland’s voters on Saturday resoundingly rejected a $5.3 billion plan to pay off Britain and the Netherlands for debts spawned by the collapse of an Icelandic Internet bank, according to initial results.

Results returned from around 83,500 ballots – or more than 40 percent of the total ballots expected – counted so far showed that 93 percent of voters said “no” in the referendum, compared to just 1.5 percent who said “yes.” The rest were invalid ballots.

Icelanders were deciding whether to back a plan outlining the payment of $3.5 billion to Britain and $1.8 billion to the Netherlands as compensation for funds that those governments paid to around 340,000 of their citizens who had accounts with the collapsed bank Icesave, an Icelandic Internet bank that offered high interest rates before it failed along with its parent, Landsbanki.

Many voters object to the tough terms of the deal imposed by the debtor countries, not the idea of payment itself.

“This result is no surprise,” Prime Minister Johanna Sigurdardottir said. “Now we need to get on with the task in front of us, namely to finish the negotiations with the Dutch and the British.”

The initial referendum results are indicative of how angry many Icelanders are as the tiny island nation struggles to recover from a deep recession. The global financial crisis wreaked political and economic havoc on Iceland, as its banks collapsed within the space of a week in October 2008 during the credit crunch and its currency, the krona, plummeted. The Icelandic government was the first to fall as a result of the meltdown.

Final results of the referendum are not available until today, though they are expected to be largely in line with the results so far.

The vote could jeopardize Iceland’s credit ratings, making it harder to access much-needed funding to fuel an economic recovery. Unemployment has surged since the crisis began, to about 9 percent in January, and inflation is running at about 7 percent annually, while the island’s economy continues to shrink.

Icelandic authorities have recently been in talks with Britain and the Netherlands to come up with a better deal to try to avert Saturday’s referendum.

The debt owed to Britain and the Netherlands is a small sum compared to the massive amounts spent to rescue other victims of the global meltdown – $182.5 billion was paid out to keep U.S. insurance giant American International Group Inc. alive – but many taxpayers in the country of about 320,000 say they can’t afford to pay it.

The deal would require each person to pay around $135 a month for eight years – the equivalent of a quarter of an average four-member family’s salary.

Locals see the deal as an unfair result of their own government’s failure to curtail the excessive spending of a handful of bank executives that led the country into its current malaise.