Iceland to Strive for Agreement on Icesave

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Iceland to Strive for Agreement on Icesave

Icelandic authorities have decided to strive for reaching agreements with British and Dutch authorities in the next few days on how Icesave account holders in these countries, who suffered financial damages when Iceland’s Landsbanki went bankrupt, should be compensated.

According to Morgunbladid, leaders of the Icelandic government believe concluding the Icesave dispute is the only way to have the board of the International Monetary Fund (IMF) accept Iceland’s request for an emergency loan.

Landsbanki's headquarters in Reykjavík. Copyright: Icelandic Photo Agency.

Icelandic authorities have allegedly been under considerable pressure from European Union member states and EU institutions to reach an agreement with Britain and the Netherlands. Apparently, all 27 EU member states share the opinion that Iceland should not receive assistance from the IMF before the Icesave dispute has been settled.

Yesterday, President of the European Commission José Manuel Barroso said in a press conference that Icelandic authorities had to reach agreements with these countries before the EU would consider granting them a loan.

The EU member states disagree with Iceland’s legal argumentations, reasoning that the union’s Deposit Guarantee Schemes Directive must be honored, according to which deposits worth up to EUR 20,887 (USD 26,113) should be secured by the state in which the bank in question is headquartered. Although Iceland is not in the EU, the directive also applies to EEA countries.

The Icesave deposits were the responsibility of Iceland’s Landsbanki, which has now been nationalized, but not the responsibility of foreign daughter companies. According to the EU directive, the Icelandic state should therefore compensate account holders.

Icelandic tax payers may therefore suffer a debt burden of up to ISK 600 billion (USD 4.4 billion, EUR 3.5 billion). However, the EU member states have indicated that if Iceland is prepared to agree to the demands of British and Dutch authorities, they will make sure that the terms of the agreements will not prove too inflictive for Icelandic tax payers.

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