PARLIAMENT FINALLY PASSES ICESAVE

UNCLAS REYKJAVIK 000228 SENSITIVE SIPDIS TREASURY FOR NORTON NSC FOR HOVENIER E.O. 12958: N/A TAGS: PGOV PREL ECON IC SUBJECT: PARLIAMENT FINALLY PASSES ICESAVE REF: Reykjavik 227 ¶1. (U) After months of debate, Iceland's parliament passed the Icesave bill late in the evening of December 30 by a vote of 33 to ¶30. Passage of the bill allows the government to provide a state guarantee for the Depositors' and Investors' Guarantee Fund's repayment of up to $5.5 billion to the British and Dutch governments for loans covering losses by their depositors as a result of the October 2008 Icelandic banking collapse. The opposition voted uniformly against the bill while most members of the coalition government supported the measure. Only two members of the coalition, Lilja Mosesdottir and Ogmundur Jonasson, broke ranks and voted against the bill. The one independent in the parliament, Thrainn Bertelsson, voted in favor of the Icesave bill. The president now has two weeks to sign the bill into law. ¶2. (U) Steingrimur J. Sigfusson, the leader of the Left Green Party, hailed the vote as an important step in Iceland's economic recovery. "It is my firm belief and conviction," he said, "that the new year will bring economic recovery." The opposition, on the other hand, feels that this decision will saddle the Icelandic people with crippling debts for generations to come. The leader of the Independence Party, Bjarni Benediktsson, said that "by passing this bill, the Icelandic government (the coalition government of the Social Democrats and the Left Greens) wants to make the debts of private banks the debts of the Icelandic public without taking the issue to court." ¶3. (U) This is the second time that Iceland's parliament has voted on the Icesave agreement this year. In its first iteration, which passed in August, parliament added significant amendments to the original agreement signed with the British and Dutch governments in March. Those two governments found the amended version of the agreement to be unsatisfactory. Renegotiations forged a new agreement that the Icelandic Parliament officially accepted in the December 30 vote. ¶4. (U) The opposition tried to amend this bill to require a general referendum to be held on the issue within six weeks. The proposed amendment was struck down by the same 33-30 margin of the bill. The President, Olafur Ragnar Grimsson, has two weeks to sign the bill into law and has stated that he intends to examine the matter closely before making a final decision. He said that he cannot ignore the large percentage of Icelandic voters (more than 45,000) who signed a petition asking him not to sign the bill in order to force the matter to go to a national referendum. President Grimsson plans to honor his promise to the leaders of the group that organized the petition, InDefence, and meet with them before making a final decision. ¶5. (SBU) Comment: Assuming the President signs the Icesave bill into law, it will be a significant step for Iceland because it opens the door for economic recovery and allows economic policymakers to look forward rather than backward. This step ensures that the IMF program and Nordic loans will continue and allows the government to direct its limited resources towards other pressing matters. The decision is largely unpopular with the general public and even those Icelanders who supported the agreement felt the nation had been backed into a corner. The matter sparked unrest and, at least on one occasion several months ago, threatened to topple the government. At this point, the coalition seems adequately cohesive to continue. Although the issue has been resolved in parliament, the wounds created by the Icesave controversy will likely heal slowly and affect the country for years to come. End comment. WATSON