In a further twist to the Icelandic banking saga their President, Olafur Ragnar Grimsson today refused to sign the bill into law that would repay Britain £3.6 million for the collapse of Icesave. The UK and Dutch governments’ compensated their 320,000 savers in the Icelandic banks on the understanding they would get the money back from Iceland.This is only the second time since Iceland’s founding in 1944 that the president has refused vetoed a bill passed by their parliament. This situation will force a national referendum on the issue and could well undermine their own attempts to rebuild their economy and international trust.

The President has done this in response to widespread public opposition to the repayment plan that the government so narrowly (33 votes to 30) got through the legislature. It puts president and parliament at loggerheads as well as wrecking diplomatic relations with the UK and Netherlands who were left out of pocket by Icesave’s collapse. The Prime Minister, Johanna Sigurdardottir, later reaffirmed that the money would be repaid. This episode may well also affect Iceland’s attempts to join the EU.

The Icelandic government had hoped that by agreeing this repayment they could gain access to IMF loans that the UK and Netherlands had effectively locked up until their grievances were addressed.

The Icelandic public are angry with the UK because of the use of anti-terror laws to freeze Icelandic bank assets.

The last little spat we had with Iceland was over cod in three separate ‘Cod Wars’ between September 1958 and June 1976. At one stage the UK deployed twenty two frigates, seven supply ships, nine tugs and three support ships as well as aircraft against four Icelandic patrol vessels and two armed trawlers. The last ramming was conducted by HMS Falmouth against the V/s Tyr on 6th May 1976. The last Cod War ended when Iceland threatened to close its US base at Reykjavic, which was vital to the cold war effort as maritime patrol aircraft and the Integrated Undersea Surveillance System operated from there.

Iceland no longer has this particular card to play and could find itself isolated for many years to come should the people vote ‘No’ to repayment. But it would also send a message to the UK government that guaranteeing deposits in this manner may not be good policy into the future. The UK also doesn't have as many warships now as it did back then.

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