Chilly reaction
January 6, 2010
The European Union will take into account Iceland's handling of the Icesave bank failure in Reykjavik's bid for EU membership, the European Commission has said.
"The commission hopes that an acceptable solution for all the parties concerned will be found," a spokesman in Brussels said. But he added that it is mainly an issue between Iceland, the UK and the Netherlands as it concerns compensation for UK and Dutch depositors in Icesave accounts.
On Tuesday, Iceland's president Olafur Ragnar Grimsson blocked an unpopular but previously approved bank compensation plan for foreign investors in his country's failed banks.
Iceland was to pay $5.4 billion (3.8 billion euros) in compensation to Britain and the Netherlands, the nations that had stepped in to compensate their own citizens who lost money when the Icesave bank collapsed. Icesave was operated by Landesbanki, which collapsed in the fall of 2008.
But over the weekend, Grimsson received a petition signed by nearly a quarter of the Icelandic voters protesting against the Icesave compensation bill. On Tuesday, the president announced he would not sign the bill, but instead, in accordance with the constitution, submit the plan for a referendum.
Britain threatens to withdraw its backing
While a poll on Wednesday showed that more than half of Icelanders supported the president's decision, his announcement sparked anger in London and The Hague, where government officials urged Reykjavik to meet its international obligations.
Britain's financial services minister Paul Myners said controversy over the compensation deal could impact on Britain's support for Iceland's EU bid.
Hoping to stabilize the economy following the collapse of its financial sector, Iceland's parliament voted last year to begin a process that could eventually lead to its membership in the EU.
Meanwhile, the US rating agency Standard and Poor's said Wednesday it has put Icelandic debt under negative credit watch. The agency said that the Icelandic president's refusal to sign the bill could undermine support from the International Monetary Fund.
On Tuesday, another credit rating agency, Fitch, downgraded Iceland's long-term debt rating due to what it termed a renewed wave of domestic political, economic and financial uncertainty.
Iceland's parliament will meet Friday to discuss the referendum.
db/AP/AFP/Reuters/dpa
Editor: Trinity Hartman