Iceland to repay Britain $3.45 billion debt due to Icesave Bank failure
Reykjavik, Iceland (AHN) – Iceland will start repaying a $3.45 billion (EUR 2.6 billion) from Britain in 2016. Reykjavik owed the amount to London after the online Icesave Bank failed two years ago.
The agreement to repay ends two years of dispute over interest rates between the two countries after Iceland’s financial system collapsed in October 2008. Following the failure of Icesave’s parent company Landsbanki, the U.K. treasury had to bail out 300,000 British depositors, including 108 English, Scottish and Welsh councils that have high-interest accounts in Icesave.
The International Monetary Fund also extended a $2 billion loan, while Sweden, Finland, Norway and Denmark provided another $2.5 billion loan to Iceland.
According to the European Economic Area regulations, Iceland was supposed to pay each account holder $29,158 (EUR 22,000), but because of the financial straits in Iceland, Britain and the Netherlands offered the country a loan. Landsbanki also had a number of Dutch depositors.
Icelandic and British officials initially agreed a year ago to set the interest rate at 5 percent. However, 93 percent of Iceland residents rejected the agreement because they considered the interest rate too high.
The new agreement sets interest rate between 3 percent for the Netherlands and 3.3 percent for Britain on repayments from 2009 to 2016. The debt should be fully paid back by 2046.
The deal, however, needs the seal of approval from Iceland’s Parliament, president and government. If the agreement is approved, ratings agency Moody’s said Reykjavik’s credit rating could be raised and it may pave the way for Iceland joining the European Union.
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