Icesave Analysis: What Does the President’s Veto Mean? Skip to content

Icesave Analysis: What Does the President’s Veto Mean?

After the President of Iceland used his power to put the so-called Icesave-law to a national vote the Icelandic people are sharply divided. Many thought that the negotiation was handled poorly and that the British and Dutch governments treated Icelanders unfairly. Others are afraid that Iceland will be punished by not getting financial support from the International Monetary Fund and others who had promised to lend the country money. Many have interpreted the news as indicating that Icelanders do not want to pay their obligations. This is not a fair understanding of the national mood.

Some facts should be pointed out:

  1. The President, Ólafur Ragnar Grímsson, was one of the leaders of the left wing during his time in party politics. He was chairman of the People’s Alliance a socialist party that had between 10 and 15% of the vote. Traditionally, Icelandic presidents have tried to stay above party politics. One of Ólafur Ragnar’s fiercest enemies in Icelandic politics was Davíd Oddsson, chairman of the right wing Independence Party and Prime Minister for more than 13 years. The two are now united in their opposition to the Icesave deal.
  2. Steingrímur J. Sigfússon, Minister of Finance was also a member of the People’s Alliance during Ólafur Ragnars chairmanship. However Steingrímur and Ólafur Ragnar were opponents within the party. Another of Ólafur Ragnars opponents within the People’s Alliance was Svavar Gestsson, Chairman of the Icesave negotiating team. President Ólafur Ragnar may not be overly concerned that his old enemies within the party are now on the defensive.

  3. The leader of the biggest opposition party, Bjarni Benediktsson of the Independence Party said before the Presidents decision that the President should sign all laws coming from Althingi, Iceland’s Parliament. This is in spite of the fact that the Independence Party fought against the law. On the other hand the Independence Party supported a law set in August about a state guarantee for Icesave. This compromise was signed by the President, but rejected by the Dutch and British governments.
  4. The President did not consult any of the opposition leaders before reaching his decision. He did talk to four cabinet members and the head of the Central Bank, all of whom probably urged him not to use his veto power.

  5. The President has always been isolated and during his political career he did not make any close friends or allies. It seems unlikely that he decided not to sign because of any personal contact. He was urged to do so by approximately 60 thousand voters, about 25% of the electorate in Iceland.
  6. Because of the close support of the President for some of Iceland’s leading businessmen, including owners of the Landsbanki (the Icesave bank) Björgólfur Gudmundsson and his son Björgólfur Thor Björgólfsson, he has become more controversial than before. He may be seeking the spotlight as Iceland’s savior in this very difficult situation.

The President’s decision seems to have taken most people by surprise. Another surprise is the harsh reaction from abroad. Fitch rating has already downgraded Iceland’s debt to junk level. This means that it will be virtually impossible to get new financing for the country, except through the channels already used, i.e. at the state level.

With friends: President Ólafur Ragnar Grímsson with Landsbanki CEO Halldór J. Kristjánsson and owner Björgólfur Gudmundsson.

At this moment nobody in Iceland knows what will happen next. The left wing government of Jóhanna Sigurdardóttir may decide to resign. Former Foreign Minister Jón Baldvin Hannibalsson urged the government to do so on Stöd 2 television this evening. Althingi will probably be called together from winter recess very soon. At any rate it must be decided how and when the national vote on the Icesave-law will be held. The constitution says it should be held at the soonest possible opportunity.

Meanwhile, the President is going to India to receive an award from the Nehru foundation. Foreign Minister Össur Skarphédinsson said this afternoon that he would not be travelling with the President as previously announced. Finance Minister Sigfússon, clearly angered, said that cabinet would not let the President’s travels affect its actions.

The Independence Party suggested this fall that the EU should mediate a new agreement between Iceland and the Dutch and British governments. This might be the path to a solution to a dilemma that most Icelanders want to put behind them.

Icesave bank owner Björgólfur Gudmundsson (center) with former leaders of the Independence Party, David Oddsson (left) and Geir H. Haarde (right).

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