The UK government is set to receive a small windfall after Iceland decided to pay back the £3.6bn lost by savers here and in the Netherlands in the Icesave bank crash. This news will bring an end to the long-running saga that has caused major political friction between the three countries.
The bill, which proposed to pay back the £3.6bn, was passed through the Iceland parliament – the Althingi – today.
Forty-four MPs voted in favour of the deal to repay funds that were lost when internet bank Icesave collapsed in 2008. Sixteen voted against and three abstained. The vote must now be ratified by Icelandic President, Olafur Grimsson.
Last year the president killed off a previous deal by refusing to sign an agreement, which he sent for a referendum – and it was then rejected by the people of Iceland.
This time round, however, he appears happier with the current deal, which relaxes interest rates and allows a longer, more realistic time for repayment.
Gordon Brown, Prime Minister at the time, repaid the British people who had lost money in the Icelandic banks shortly after the financial crisis. Therefore, these funds – if and when they are paid – will go straight into the Treasury coffers.
The agreement will see Iceland start repayments in 2016 and finish by 2046, at an interest rate of 3.3 per cent. Money will also be repaid to Holland at a rate of 3 per cent. Britain has been seeking £2.3billion in compensation and the Netherlands £1.3 billion.
The previous Icesave agreement had a 5.5 percent interest rate and was approved by Iceland’s parliament, but rejected by the president and later rejected in a national referendum.
The repayments are expected to cost Iceland just under 50 billion Icelandic kronur in total. The recovered assets of Landsbanki, the parent of Icesave, are expected to cover the majority of the debt.