First, an economic whirlwind hit Iceland; now, it's in the midst of a political one. Last week, the country's president refused to sign a controversial bill to repay a $5 billion debt to Britain and the Netherlands, incurred when three Icelandic banks went belly up in October 2008.
The Icelandic banks and their online subsidiaries with their high interest rates had attracted many savers from Britain and the Netherlands. When the banks collapsed 15 months ago, the British and Dutch governments stepped in to refund their savers who lost money.
Britain and the Netherlands then negotiated a deal with the Icelandic government to be reimbursed for the money they paid out, and that bill was passed by the Icelandic parliament. Last week, though, President Olafur Ragnar Grimsson refused to sign the bill.
"The fundamental basis of the Icelandic political system is that the people, the nation, is the sovereign power," Grimsson said in a telephone interview. "It is the duty of the president under the constitution to make sure that the people of the country will have the final say on law."
What Grimsson means is that, under the Icelandic Constitution, what must now happen is a referendum on the bill. The reason Grimsson did not sign is that he had received a petition signed by a quarter of the population of Iceland, urging him to push for a renegotiation of the terms of the repayment.
Opponents of the terms of the bill have set up a pressure group called In Defence. It's headed up by high school teacher Johannes Por Skulason, who says Iceland is not obliged to reimburse Britain and the Netherlands and, even if it does pay money back, it should be under better conditions.
"Iceland is doing what it can," he says. "We're saying we want to pay back, but ... we're being made to sign a deal that carries within it a risk of national bankruptcy, a risk of Iceland being pushed back to financial middle ages for years to come."
Certainly, the payback would hurt Iceland for many years, with an interest rate of 5.5 percent on the loan. And Iceland already has an external debt of between three and nine times its GDP. Despite opposition, others within society and within government say that passing the law is fundamental to Iceland's economic recovery, and that Iceland just needs to bite the bullet and move on, without the complication of a referendum.
"What do you think would have been the outcome in the United States if the taxpayers had got the chance to vote about the bill, the bailout? Just imagine," says Finance Minister Steingrimur Sigfusson. "It is not an easy task to get the voters to accept increased taxes and economical burden because of irresponsible behaviors of bankers."
'None Of Us Like This'
Sigfusson is hugely frustrated at the president's decision not to sign the bill.
"Obviously, the case is immensely unpopular in Iceland and quite understandably so. None of us like this, but that doesn't alter the fact that we need to deal with it, we need to solve it so that we are able to move forward and continue our economic restoration," Sigfusson says.
Some people on both sides are pushing for compromise to avoid the referendum altogether and the political turmoil — and further economic delay — that it could bring.
Whether a referendum happens or not, Sigfusson says, there is something deeper going on in Iceland — a moving away from what he calls the culture of neo-liberal greed and a returning home to its Nordic roots.
"I can be very frank about it: What we want to do is abolish this neo-liberal greed philosophy that was driving things in the bubble years," he says. "What we want to re-establish in Iceland is a strong Nordic welfare society with equal justice and equality."
Icelanders themselves are divided on whether the president did the right thing. But regardless of their stance on this particular bill, many share the finance minister's view that things simply got out of hand, and it's time to get back to more solid, dependable, Icelandic ways.