Tuesday

9th Aug 2022

Iceland debt talks collapse

  • Reykjavik street: The Icelandic people are up in arms about the Icesave deal (Photo: European Commission)

Talks between Iceland and the UK and the Netherlands over the Icesave banking dispute collapsed late on Thursday, making a referendum on a previously agreed deal more likely, a vote the government in Reykjavik is almost certain to lose.

The Icelandic finance ministry announced on Thursday evening that the latest round of talks between the parties had "adjourned without a final resolution."

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Representatives of the three parties had been meeting in London for the last two weeks.

"We had hoped to be able to reach a consensual resolution of this issue on improved terms", said Icelandic finance minister Steingrímur Sigfússon, "but this has not as yet been possible."

"Constructive proposals were made by both sides during these talks, but significant differences remain," he added.

Icelandic negotiators are to return to Reykavik to discuss what is to be the government's next move.

After the Icelandic Icesave internet bank collapsed in 2008, depositers in the UK and the Netherlands were compensated by their governments to the tune of €3.8 billion. The Hague and London now are demanding Reykjavik pay them back.

The government has agreed to do so, but the terms are considered onerous by a majority of the population. Under the terms of the agreement the loan will be paid back over 15 years with interest, with estimates suggesting every household will have to contribute around €45,000.

The UK-Dutch side had reportedly offered reduced interest rates and a suspension of interest for two years, an position described by the Dutch as their "best offer".

The Icelandic side felt that the interest applied would still be too high to be palatable domestically.

The Icelandic president had refused to sign the government bill that approved a schedule of payments to the two governments, provoking a referendum on the matter due on 6 March, which analysts and pollsters expect the government to lose.

In trying to negotiate better terms for payback of the debt, the government had hoped to avoid the vote, as it is certain to threaten the supply of international financial aid.

The referendum is now likely to proceed and a No vote all but assured.

The development further threatens the likelihood of Iceland acceding to the European Union, as the UK and the Netherlands have hinted that they will block accession talks with the north Atlantic nation if the Icesave issue is not resolved.

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