Iceland prepares referendum as credit status worries grow

City A.M. Reporter
ICELAND is set to hold a referendum on 20 February on whether to repay Britain and the Netherlands more than £3bn their savers lost when Icelandic banks collapsed.

The date was announced as ratings agency Standard & Poors placed Iceland on a “negative credit watch” and warned it could downgrade the country’s credit rating “by one or two notches within a month”, following President Olafur Grimsson’s refusal on Tuesday to sign the Icesave bill into law.

S&P said Grimsson’s controversial move threatened to derail an International Monetary Fund support programme.

S&P’s decision followed ratings agency Fitch’s move to downgrade Iceland’s debt to junk status on Tuesday.

The Icesave bill is deeply unpopular as swathes of the population think it unfair that they should have to pay for the mistakes of private firms and regulators.

Britain has warned Iceland it faces economic isolation if voters reject the bill.

And the European Commission yesterday said that how Reykjavik handles the Icesave issue could affect the assessment of its EU membership bid.

The cost of insuring Icelandic debt against restructuring or default rose yesterday.