Iceland’s bid to join the EU was thrown into disarray on Tuesday (5 January) when Ólafur Ragnar Grímsson, the island’s president, refused to sign into law an agreement committing Iceland to repay British and Dutch depositors affected by the collapse of Icesave bank. 

The British and Dutch governments have made it clear that they will not back the opening of EU membership talks with Iceland unless Reykjavik ratifies the bill and begins implementing the repayment scheme.

Grímsson’s refusal to sign the bill means that it will be put to a popular referendum. Around 56,000 of Iceland’s 320,000-strong population – equivalent to one in four voters – in recent days signed a petition urging Grímsson not to approve the legislation, and polls last year indicated that around 70% of the population oppose the deal.

Grímsson cited the petition as a reason for his decision.

“Now the people have the power and the responsibility in their hands,” Grímsson said on Tuesday.

Many Icelanders question why taxpayers should reimburse private investors who lost money in the collapse of a private bank.

The bill sets aside €3.8 billion – close to €12,000 per Icelander – to repay the British and Dutch governments, which have already reimbursed account-holders hit by the collapse of Icesave, an offshore bank then owned by Iceland’s Landsbanki.

All of Iceland’s main banks collapsed in 2008 and had to be taken over by the state.

Commitment

Jóhanna Sigurðardóttir, the prime minister, said that “despite the president’s decision, the government of Iceland remains fully committed to implementing the bilateral loan agreements and thus the state guarantee provided for by the law”.

The bill narrowly passed Iceland’s parliament last Wednesday (30 December) after months of heated debate among lawmakers.

Should the bill be rejected by voters, similar legislation passed in August will apply. That bill, however, contained numerous amendments that were unacceptable to London and The Hague.

On Monday, Alistair Darling, the UK’s finance minister, said that the Icesave bill was “very important” for Iceland’s economic fate and that dropping the reimbursement scheme would make its recovery “a lot more difficult”.

Iceland submitted its EU membership application in July and is now waiting for an opinion from the European Commission on its readiness for accession talks, a process that in normal circumstances would take about a year.

If Iceland is eventually invited to join the EU, the government would need to secure the approval of Icelandic voters before accepting.

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