Iceland said on Sunday it had reached a deal with several European Union states on how to repay thousands of foreign savers with money in frozen Icelandic accounts, potentially unlocking billions of dollars in aid.
Conflicts over the accounts between Iceland, which is not a member of the EU, and EU states Britain and the Netherlands have been delaying an International Monetary Fund-led package worth as much as $6 billion for the crisis-hit country. “What this means here and now is that the IMF will now discuss our case on Wednesday and, following that, we expect that our application will lead to release of the funds we have negotiated with them,” Prime Minister Geir Haarde said according to a government website.
“According to the agreed guidelines, the government of Iceland will cover deposits of insured depositors in the Icesave accounts in accordance with EEA (European Economic Area) law,” the Icelandic government said in a statement, saying this “common understanding” would form the basis for more talks.
An Icelandic government spokeswoman said EEA rules stipulate that retail and wholesale depositors would be entitled to about €20,000 per account. “We had thought initially that we were dealing with two European countries, that is the UK and the Netherlands, but that’s not the case -- we are facing the entire European Union and probably other countries as well,” Haarde said.
Britain and the Netherlands have been frustrated by the situation for savers in their countries who had deposited money in the “Icesave” accounts of Landsbanki, one of the banks that crumbled during Iceland’s financial meltdown. Some 300,000 British savers -- roughly equivalent to the entire population of Iceland -- had accounts worth around £4 billion ($5.9 billion) in Icesave, which attracted overseas customers with high interest rates.
A British Treasury spokesman said Britain welcomed steps towards unfreezing the accounts. “The UK government has always supported an IMF loan to Iceland and welcomes any progress that would see resolution for British depositors and equal treatment for all creditors,” the spokesman said. Britain has already guaranteed all Britons with Icesave savings they will get all their money back and has started making payments through a compensation scheme.
BADLY NEEDED FUNDS
The Dutch finance ministry said last month it had reached an agreement in principle under which Iceland would reimburse Dutch savers for up to €20,887 ($26,490) per person for money deposited with Icesave. The Netherlands said it would extend a loan of €1.3 billion to Iceland to make this possible. Dutch authorities would then compensate depositors for anything above that amount up to €100,000. As of Friday, a Dutch finance ministry spokeswoman said the legal documents to flesh out the memorandum of understanding had not been finalized.
Iceland faces a severe recession after the global financial crisis led to the collapse of its crown currency and the government takeover of three of its largest banks. It badly needs funds to revive currency trade and restart the economy. The government said on Sunday the Icesave deal would allow for the “expeditious finalization” of talks over financial aid. Haarde said money to cover the Icesave payouts would come from the sale of the assets of the three nationalized banks.
“The European countries are aware of our situation and we have pledges to the effect that we will not be made to shoulder more than the nation is able to,” Haarde said. “Terms and conditions of the support we are now expecting from the European countries are still to be decided.”
Iceland reached a provisional deal for a $2 billion IMF lifeline in October and other lenders, including the EU and Nordic neighbors, had indicated they could be willing to stump up cash once the IMF program won official approval. IMF Managing Director Dominique Strauss-Kahn told a news conference in Washington on Saturday that the lender would finalize a rescue package for Iceland on November 19. The country, whose government has long opposed EU membership, has shown signs of warming to the idea of joining the 27-nation bloc to help avert future crises. (Reuters)