Prime Minister of Iceland Jóhanna Sigurdardóttir and her British counterpart Gordon Brown seem to disagree on whether Iceland’s responsibility to cover Landsbanki’s Icesave deposits in the UK and the Netherlands is legally binding.

Prime Minister of Iceland Jóhanna Sigurdardóttir. Photo by Geir Ólafsson.

Letters exchanged between the two prime ministers were made public yesterday.

Bloomberg.com reported that Sigurdardóttir had written to Brown on November 17 that the Icelandic government had signed the accord without “an unequivocal legal obligation to do so.”

“If Iceland’s position were” later “to be vindicated by a competent adjudicator, we would certainly expect the other parties to revisit the matter in a spirit of fairness and good faith,” the letter continued.

Sigurdardóttir was responding to a letter from Brown, dated November 13, saying that he was “encouraged by the progress that has been made” and that the bill being considered by Iceland’s parliament ensures “the loan arrangements are legally sound.”

Brown said he welcomed Iceland’s commitment “to ensuring that the guarantee is legally binding.”

Bjarni Benediktsson, chairman of the Independence Party, Iceland’s largest opposition party, said it is unfortunate that the two prime ministers disagree on such a fundamental issue, Morgunbladid reports.

“It is also reprehensible that it was kept secret from the parliament where the matter is being discussed and specific questions on the letter were posed,” Benediktsson said.

Brown’s letter was written in response to a letter from Sigurdardóttir dated August 28, where she invited Brown to have a meeting with her if he believed it to be useful. Brown didn’t mention the proposed meeting in his response letter.

In August, the Icelandic parliament, Althingi, introduced preconditions to the original agreement between the governments of Iceland, the UK and the Netherlands on loans granted to the Depositors’ and Investors’ Guarantee Fund of Iceland so that the Icesave depositors in the UK and the Netherlands could be compensated.

A new agreement was reached between the three governments in October, where some of the preconditions were changed. Subsequently, the government of Iceland submitted a new bill on the state guarantee on the Icesave loans, and that bill is currently being discussed at parliament.

Click here to read the full story on bloomberg.com and here to read more about Icesave.