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News : EU Economy Last Updated: Feb 18, 2011 - 5:17 AM


Icelandic parliament supports latest deal with UK/ Netherlands on Icesave €4bn debt issue
By Michael Hennigan, Founder and Editor of Finfacts
Feb 17, 2011 - 4:04 AM

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Ásta Ragnheiður Jóhannesdóttir (r) the Speaker of Iceland's parliament, the Althingi, receives a report on the banking collapse on April 12, 2010. Behind her on the right is Jóhanna Sigurðardóttir, prime minister of Iceland.

Icelandic parliament supports latest deal with UK/ Netherlands on Icesave €4bn debt issue

The Icelandic parliament, the Althingi, on Wednesday voted support for a bill confirming the latest agreement reached between Iceland, the UK and the Netherlands on the Icesave €4bn debt issue.

The result was a strong majority of more than two-thirds approval for the new agreement. A total of 44 MP´s voted in favour of the agreement , 16 MP´s opposed and 3 MP´s abstained.

The bill waits the formal approval of Iceland's president.

"The result of the voting today, with such a strong majority of the Parliament approving the new agreement, is extremely important. The voting will undoubtedly have a positive impact on the Icelandic economy and help the country achieve it's goals in restructuring the economy. Too date much progress has been made in getting Iceland back on track and the resolution of the Icesave issue is a huge step in that direction," Steingrimur J. Sigfusson, minister of finance, said.

When the Icesave online bank collapsed in 2008, €4bn in deposits from 300,000 British and Dutch depositors, including local governments, were at risk.

Iceland was required by EU rules to maintain deposit insurance for its banks and when Landsbanki Islands bank collapsed, its Icesave unit also crashed.

The deposits were attracted by the highest interest rates in the UK and the Netherlands. The British and the Dutch governments refunded the deposits and Gordon Brown's government used the UK Prevention of Terrorism Act to freeze the transfer of funds from the UK.

Landsbanki Islands bank is still being unwound and Iceland will recover some funds from the wreckage but last year a long-term repayment deal on Icesave was rejected in a referendum.

The latest deal cuts the average interest rate to 3.2% compared with 5.55% in the rejected deal; interest payments would commence immediately and principal repayments in 2016, with repayments spread over a maximum of 37 years.

In excess of 30,000 people - - almost a tenth of the Icelandic population - - have so far backed a petition to Ólafur Ragnar Grímsson, the Icelandic president, to hold another referendum.

Sovereign default can seem like a panacea to some but it's not easy for countries to draw a line under international obligation, despite questions of morality.

"Iceland has been able to recover because we let the private  banks fail...and we could devalue," Ólafur Ragnar Grímsson, president of Iceland told CNBC in Davos last month. The IMF  program will probably be over later this year and the country is on the road to recovery, he said. He also discussed the country's plans to join the EU:

               

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