Tuesday

2nd Jun 2020

Icesave deal with UK, Netherlands to go before parliament

  • Reykjavik has won a lower interest rate on its banking debt to the UK and the Netherlands (Photo: Eivind Sætre/norden.org)

Iceland's long-simmering row with the Netherlands and the UK over the fall-out of collapsed bank Icesave appears to be over, with the country's negotiators brandishing a deal that has seen London and the Hague back down to a degree from an earlier position domestic voters viewed as 'bullying.'

A bill covering the new deal will be presented to the Icelandic parliament, the Althingi, on Thursday (16 December) and discussed by the chamber in mid-January.

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The terms of the agreement, reached on Friday, make it easier for the country to repay a multi-billion-euro debt incurred when the two EU powers paid depositors who stood to lose their savings after the bank's parent firm failed during the Icelandic banking crash in 2008.

After the Icelandic Icesave internet bank collapsed, depositers in the UK and the Netherlands were compensated by their governments to the tune of €3.8 billion. The Hague and London then demanded Reykjavik pay them back.

The government had agreed to do so in an earlier deal, but the terms were considered onerous by a majority of the population. Under the terms of the original agreement, the loan would have been paid back over 15 years with high rates of interest. Estimates had suggested every household would have to contribute around €45,000.

The president of the country had refused to sign the government bill that approved a schedule of payments to the two governments, provoking a referendum on the matter in March that saw the earlier deal rejected by 91 percent of Icelanders.

Crucially, the new agreement offers a 3.2 percent interest rate on the cash being paid back, substantially lower both than the original 5.5 percent initially demanded and the rates the EU's own internal bail-out schemes are charging Greece and Ireland.

Repayments will also be capped at a rate linked to a percentage of Icelandic economic growth, giving the country room to improve its economy rather than spend all its energy on paying back foreign debts.

Reykjavik did not win everything it was looking for however. The country will still have to pay back the full amount. Icelandic negotiators had been pushing for an agreement that would see the debt eventually retired if the country's economic growth remained retarded for a number of years.

"This agreement is made under totally different circumstances from the previous one when lending rates were much higher and our currency reserves were limited," finance minister Steingrimur Sigfusson told public radio.

Meanwhile, documentation surrounding the deal has been leaked online by an unidentified group calling itself the Union of Interested Parties in Open Administration. While the details of the deal have been made public by the government, the documents themselves had not been officially released.

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