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Iceland President urges referendum on bank compensation (Roundup)

Jan 5, 2010, 15:16 GMT

President of Iceland Olafur Ragnar Grimsson addresses a press conference in Reykjavik, Iceland, 05 January 2010. EPA/HALLDOR KOLBEINS

Reykjavik - Iceland faced new uncertainty following a decision Tuesday by the president to call a referendum on a compensation plan for mainly foreign savers in a failed Icelandic bank.

The government of Prime Minister Johanna Sigurdardottir has said the plan - narrowly approved by parliament on December 30 - was necessary for Iceland to restore its economy battered by the global financial crisis, and secure international loans.

Opposition has grown against the plan under which Iceland is to repay 5.4 billion dollars in compensation to Britain and the Netherlands. The two governments had initially stepped in to compensate their citizens who lost money with the Icesave bank.

Finance Minister Steingrimur J Sigfusson said he was worried about Iceland's image, adding it was necessary to 'send a clear message soon to other countries that it is not our intention to run away from our obligations.'

President Olafur Ragnar Grimsson earlier said he would not sign the bill, opting to call a referendum on the Icesave compensation plan.

Poinitng out that Iceland is already saddled with huge debts, critics have said the taxpayers should not be held responsible for mistakes made by a few private banks.

Icesave was operated by Landsbanki, one of three main Icelandic banks that collapsed in the autumn of 2008. A year ago, the government fell and a new coalition led by Sigurdardottir took office.

An initial deal on Icesave reached in August had to be revised as the British and Dutch governments opposed amendments to the plan.

In his televised remarks, the president mentioned a petition signed by more than 61,000 of the North Atlantic nation's 320,000 inhabitants who opposed the Icesave compensation and called for a referendum.

'The involvement of the whole nation is therefore a prerequisite for a successful solution,' Grimsson said.

No date for the referendum was announced.

Sigurdardottir said the government remained 'committed' to honouring its obligations, including to repay Britain and the Netherlands.

Although the head of state has veto powers, they are rarely used.

'I doubt also that it is normal that the president interferes with international issues like Icesave,' the premier told reporters.

Fulfilling the Icesave compensation plan with payments made in installments over the next 14 years has been seen as necessary for Iceland to move ahead with its efforts to join the European Union. Reykjavik handed in a membership application in July.

The collapse of Iceland's banks plunged the country into recession, and the government was forced to seek emergency loans from the International Monetary Fund and its Nordic neighbours as well as Poland.