Iceland, the UK and Netherlands Agree on Icesave

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Iceland, the UK and Netherlands Agree on Icesave

The Icelandic government has agreed to take an USD 5.44 billion (EUR 3.88 billion) loan from the UK and the Netherlands to repay those who lost their savings with the collapse of the Icelandic bank Landsbanki, and its online savings unit Icesave.

The headquarters of Landsbanki in Reykjavík. Copyright: Icelandic Photo Agency.

The UK will lend Iceland GBP 2.35 billion (USD 3.76 billion, EUR 2.68 billion) of that amount and the Netherlands EUR 1.2 billion (USD 1.68 billion). The loan is to be paid back over a period of 15 years and will be interest-only for the first seven, bloomberg.com reports.

“I think we can handle this arrangement. I think it is within the endurance limit of the Icelandic economy,” chairman of the Icelandic Icesave negotiation committee Svavar Gestsson told Morgunbladid.

Gestsson explained that the Icelandic treasury won’t pay a single króna because of the Icesave deposits for at least seven years; these payments will be covered with the assets of Landsbanki in London.

“Firstly, we will provide the economy with a refuge for seven years in the middle of the crisis. Secondly, it is important to keep in mind that this decision will reopen the financial world to Iceland. Thirdly, this agreement will strengthen the exchange rate of the Icelandic króna,” Gestsson stated.

Gestsson claimed that the International Monetary Fund (IMF) had supported the solution submitted by Iceland, which was of considerable significance. “Everything was at stake. Everything was shaking and vibrating here earlier this winter and also the EEA agreement, as far as I understand, although I cannot recite that story in detail.”

“We were simply faced with two options,” Gestsson continued. “On the one hand option A, which was about reaching a reconciliation with the international community. On the other option B, which involved breaking away from it.”

“Then Iceland would be in danger of becoming isolated, and then I think the poverty and the difficulties would have been much worse than otherwise,” Gestsson stated. “But what I think about this matter is irrelevant. Although I can say that I don’t think we had any other option but to being an end to this matter.”

The Icesave agreement will be discussed at Iceland’s Althingi parliament today. Baldvin Jónsson, a board member of the Civic Movement, has called for protests against signing the agreement at Austurvöllur parliamentary square at 3 pm today, Fréttabladid reports.

Economics professor Thórólfur Matthíasson said Icelanders can be content with the agreement although he certainly understands the criticism of those who would have wanted a more favorable solution for Iceland.

Matthíasson pointed out the importance of the agreement in how in prevents lawsuits from claimants demanding compensation because of discrimination. The agreement also puts a roof on the maximum financial damage caused to Iceland because of the Icesave matter, which is lower than when Icelandic claimants were compensated.

Furthermore, it is possible that the matter be reviewed after seven years when at least two parliamentary elections will have taken place in Britain, Matthíasson added.

Political scientist Eiríkur Bergmann on the other hand said he is having difficulties understanding why Iceland didn’t try to lobby for Britain being responsible for covering the Icesave deposits.

According to bloomberg.com, Prime Minister of Iceland Jóhanna Sigurdardóttir stated that, “Not paying was simply not an option.” 

Click here to read more about Icesave.