- Iceland strikes fresh deal with Britain and the Netherlands
- Iceland will repay nearly €4 billion lost in the failed Icesave online bank
- Deal comes after two years of diplomatic wrangling
- UK and Dutch governments will be reimbursed on less onerous terms than a previous deal
(FT) -- Iceland has struck a fresh deal with Britain and the Netherlands to repay nearly €4 billion lost in the failed Icesave online bank after two years of diplomatic wrangling.
The agreement would involve full reimbursement to the UK and Dutch governments but on less onerous terms than a previous deal rejected by Icelandic voters in a March referendum.
George Osborne, UK chancellor of the exchequer, said the agreement signaled a thaw in "glacial" relations between London and Reykjavik since Iceland's banking sector collapsed in 2008, causing billions of pounds of losses to UK and Dutch depositors.
A resolution is considered crucial for Iceland because the dispute has disrupted its economic rescue program with the International Monetary Fund and threatened its bid to join the European Union.
More than 90 percent of Icelandic voters rejected the earlier plan, angry that taxpayers were being asked to pay for bankers' and regulators' mistakes.
The new agreement must still be approved by the Icelandic parliament and win the blessing of President Olafur Ragnar Grimsson, whose veto of the previous agreement in January triggered the referendum.
The main concession to Iceland involved lower interest rates of 3.3 percent on the UK debt and 3 per cent on the smaller Dutch debt, compared with 5.55 percent in the previous agreement. There are also safeguards to ensure that repayments never exceed 5 percent of Icelandic government revenues.
Opposition politicians were involved in negotiating the new deal, improving the prospects of backing in parliament. However, the legislation still needs Mr Grimsson's approval if another referendum is to be avoided. There was no immediate response from the president's office to the deal.
Under the agreement, interest payment would start immediately and principal repayments in 2016, with repayments spread over a maximum of 37 years. But an Icelandic negotiator said Reykjavik was confident that the debts would be repaid much sooner, with all or most of the principal recovered from the estate of Landsbanki, the bankrupt owner of Icesave.
More than 300,000 British and Dutch savers poured money into Icesave, lured by high interest rates. They were compensated by their governments on the basis that Reykjavik would eventually repay the money.
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