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Iceland Braces For Referendum on Icesave Bank Bailout

March 5th, 2010

High noon in the high Arctic is fast approaching, as the people of Iceland get set to vote on March 6 in a national referendum on a plan to compensate the British and Dutch governments for their payments to deposits in their respective countries who lost money in the collapse of  Iceland’s banks. It was one of these banks, Landsbanki, which ran Icesave as an online bank that enticed foreign depositors by offering above market rates of interest on accounts. Under immense pressure from the UK and the Netherlands, the government in Reykjavik agreed to pay back more than $5 billion to the two governments, representing a significant part of Iceland’s GDP over several years.

Widespread disapproval of the agreement by the people of Iceland led the nation’s president to decide not to approve the agreement, but rather allow the people of Iceland to exercise their sovereign right on the fate of the Icesave agreement through a national referendum. Despite warnings of economic and financial isolation parallel with economic disintegration emanating from the Icelandic government and the UK and Dutch authorities, it seems almost certain that the Icesave agreement will be overwhelmingly repudiated by Iceland’s voters.

What is occurring in Iceland is noteworthy for the following reason: after politicians throughout the world have adopted the policy that taxpayers must bear the financial costs of failure in the private sector by so-called “too big to fail” businesses, for the first time an aroused citizenry is utilizing the ballot box to say to the policymakers: “Enough!”

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