In October 2008, the Icelandic bank, Landsbanki, collapsed. With it collapsed its online Icesave branch and the investments of 340,000 British and Dutch savers. Iceland’s Depositors’ and Investors’ Guarantee Fund lacked the funds to compensate its investors. The Icelandic government initially refused to take responsibility for the failure of a private bank.
After considerable negotiations, Iceland agreed to insure the liabilities of Icesave. The British and Dutch governments provided a €3.8 billion loan to cover the deposit insurance obligations for their citizens. In August 2009, the Icelandic parliament, the Althing, passed a bill setting the interest on repayment of the loan at 5.5 per cent. President Olafur Grimsson, however, refused to sign the bill, forcing a referendum on the issue. In March 2010, Icelandic voters voted overwhelmingly against the deal, with 93 per cent casting ‘no’ votes. Continue reading →