Icelandic government introduces bill to hold referendum on payments to Britain and Netherlands

Icelandic parliament debates bill on referendum

REYKJAVIK, Iceland — The Icelandic parliament decided after an emergency session Friday how to stage a national referendum on repaying $5.7 billion to Britain and the Netherlands — a poll that is seen as a defining moment in the bankrupted country’s economic recovery.

The government was forced into organizing the nationwide vote after Iceland’s president, Olafur R. Grimsson, refused to sign legislation on the repayment into law. That set off a diplomatic clash with Britain and jeopardized crucial bailout funds promised by the International Monetary Fund and Nordic countries.

After a day of debate Friday, lawmakers agreed on how to phrase the referendum question in which Iceland’s 320,000 people will be asked whether they will ratify the bill rejected by Grimsson. The date of the national vote had not yet been decided.

Grimsson had cited a wave of popular opposition as the determining factor in his decision not to sign the so-called Icesave bill, named after the high-interest-paying Internet bank that went bust, leaving the British and Dutch governments to fork out compensation for their citizens.

Britain has backed away from claims that Iceland would become an international pariah and Norway stood by its commitment to an IMF-led $4.6 billion bailout fund. But the Spanish European Union presidency warned Friday that Iceland’s bid to join the body could be delayed by the dispute.

As well as appeasing the international community, the embattled Icelandic government is facing the uphill task of winning public support for its efforts to repay the bill as an essential part of Iceland’s recovery from the collapse of its banking sector in October 2008.

“I have full trust in the Icelandic voters and know that they will make the right decision,” Icelandic Prime Minister Johanna Sigurdardottir said during debate over the referendum on Friday.

Many voters want a greater say in the country’s economic future, blaming the previous government for letting a handful of “venture Vikings” fuel the boom and subsequent bust of its top-heavy banking sector.

They are also angry at what they see as strong-arm tactics by London and the Hague that resulted in the repayment bill being amended on tougher terms, including extending the time limit of the repayment guarantee and removing Iceland’s right to challenge the payment under international law.

Opinion polls differ on whether Icelanders will approve the Icesave bill. The most recent Gallup poll suggested that 53 percent of people would vote yes, compared to 41 percent who would vote no, and 6 percent who would abstain.

With a mountain of debt on the country’s shoulders, ordinary Icelanders have been feeling the pain for months and, for many, the thought of taking on more external debt is unbearable.

“Finally the outside world is paying some attention to our cause, and acknowledging the diplomatic bullying of a small nation by a more influential one,” said Sveinn F. Sveinsson, who returned to university after losing his job in the banking sector after the collapse.

In the heady boom years, Iceland enjoyed a welfare society on par with its well-off Scandinavian neighbors, but it has already made drastic cuts, even in areas once seen as nonnegotiable such as education and basic health care.

Eirikur Jonsson, chairman of the Icelandic Teacher’s Union, said the sweeping cuts will affect the future prospects of an entire generation.

“We can delay building bridges and infrastructure, but if we don’t educate our children the best we can, we cannot make it up to them later,” Jonsson said.

The irony is that while Grimsson argued that going to a referendum would restore “reconciliation and harmony” in Iceland, a “no” vote risks worsening the situation for ordinary Icelanders by reverting to an earlier version of the bill. That would likely mean another lengthy round of talks with Britain and the Netherlands.

The government said Friday the poll would take place as soon as possible and no later than March 6. It suggested Feb. 20, 27 or March 6 as possible dates.

Spanish Foreign Minister Miguel Angel Moratinos warned that scenario could delay Iceland’s bid to join the EU.

“I hope the people of Iceland see the EU in their future,” Moratinos told reporters in Madrid. “Clearly if (the bill) is not approved it could slow down the whole calendar, the whole process of negotiations.”

As parliament met in Reykjavik, Finance Minister Steingrimur Sigfusson was dispatched to meet his counterparts in Denmark and Norway in a bid to smooth relations.

A day after Britain reasserted its support for the country’s entry to the European Union, the charm offensive also appeared to be working on the Nordic countries with Norwegian Foreign Minister Jonas Gahr Stoere saying Norway would stand by its pledge.

Sigfusson said his government has “managed to live up to all requirements” for the loan, but added it was “far too early” to discuss the options confronting Iceland in the event of a “no” vote.

AP Business Writer Jane Wardell reported from London. Associated Press Writers Gudjon Helgason in Reykjavik, Iceland, Ian MacDougall in Oslo, Norway, and Robert Wielaard in Madrid, Spain, contributed to this report.