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Iceland reaches deal for foreign savers, key for aid

(Agencies)
Updated: 2008-11-17 11:10

REYKJAVIK -- 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.

A man enters a branch of Iceland's second largest bank, Landsbanki, in Rejkjavik, in October 2008. Iceland and a group of EU countries have agreed on a negotiating framework to settle a row over compensating British savers, the government in Rejkjavik said Sunday. [Agencies]

Related readings:  Norway to extend loan to cash-strapped Iceland  Iceland says it needs $6 billion bailout  Iceland reaches deal for $2 billion loan from IMF  UK to extend loan to Iceland

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 euros ($25,370) 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 pounds ($5.9 billion) in Icesave, which attracted overseas customers with high interest rates.

A British Treasury spokesman said Britain welcomed steps toward 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 euros ($26,490) per person for money deposited with Icesave.

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