Iceland still faces a number of hurdles before it can settle a two-year depositor claims dispute with the U.K. and Netherlands as the government and opposition say lawmakers won’t be rushed to approve the bill.
“The leaders of the parties will need some time to discuss the matter and continue on the path the matter has been on so far,” Finance Minister Steingrimur J. Sigfusson said in an interview yesterday, after his government announced a depositor claims accord with the U.K. and Netherlands had been reached.
Iceland agreed the terms to compensate the British and Dutch for about $5 billion in depositor claims stemming from the failure of Landsbanki Islands hf in October 2008. The accord promises to normalize Iceland’s relations with the two European Union members and marks a final milestone in settling government obligations to foreign creditors.
“We’re of course hoping that we can now put this dispute behind us,” Sigfusson said. “But of course, there’s still some work that needs to be completed here.”
After party heads have looked through the details of the agreement, the bill has to go through three rounds of debates in parliament. Even if it wins majority backing, it will still require the signature of President Olafur R. Grimsson.
The U.K. and Netherlands won’t consider a new accord should this one be rejected during Iceland’s legislative process, said Johannes Karl Sveinsson, a member of the Icesave negotiating team.
“It’s clear that if this deal is rejected, the U.K. and the Netherlands will not negotiate a new deal,” Sveinsson said at a press conference in Reykjavik yesterday.
Bjarni Benediktsson, the leader of the opposition Independence Party, said he can’t promise he’ll support the new deal.
“We don’t believe that we are legally obliged to pay for Icesave,” as the high-yielding Internet bank accounts were called, Benediktsson said in an interview. “We’re not going to make any hasty decisions; it’s ridiculous to suggest the parliament should rush this in any way.”
The new accord will cost the Icelandic government 47 billion kronur ($409 million), compared with the 162 billion kronur in costs the state was facing under the previous accord, according to the negotiating committee representing Iceland at the Icesave talks. The rest will be covered by the proceeds from divesting Landsbanki assets, it said.
Iceland will pay an average interest rate of 3.2 percent until 2016 and the debt will be paid down by 2046, the committee said.
“There’s no subsidy of one tax payer to another,” said Lee Buchheit, lawyer and head of Iceland’s negotiating committee, in an interview with Bloomberg Television. “At least on that issue it is a perfectly fair and defensible deal.”
“Without the opposition’s support, it could take months for the government to pass this deal,” Eirikur Bergmann, professor in political science at Bifrost University outside Reykjavik, said in an interview. “If the opposition decides to filibuster the agreement, this will take a long time.”
A previous Icesave accord agreed between the three countries’ governments was blocked by Grimsson in January, even after it won parliamentary backing. The move prompted Fitch Ratings to downgrade Iceland’s debt to “junk” as a normalization of international relations grew more remote. The accord was subsequently rejected by 93 percent of voters in a March referendum.
Grimsson last month signaled he may refer any new deal to a plebiscite.
“If the people of Iceland are being asked to pay for the failure of a private bank, they should also have a say in the final outcome,” Grimsson said in a Nov. 26 interview with Bloomberg Television’s Mark Barton. “So I don’t think any deal that is not in harmony with the Icelandic people is viable.”
Iceland’s debt is rated Baa3 at Moody’s Investors Service and BBB- at Standard & Poor’s, the lowest investment grades.
Moody’s said last month settling claims stemming from Icesave may lift the island’s credit rating.
Iceland’s government shielded its taxpayers from the cost of bailing out the island’s banks, leaving creditors struggling to recoup $85 billion in debt. Kaupthing Bank hf, Landsbanki and Glitnir Bank hf all failed in October 2008 after they were unable to secure short-term funding.
Former Prime Minister Geir H. Haarde was indicted by parliament in September for alleged economic mismanagement that exacerbated the island’s financial crisis. A parliamentary committee said Haarde’s failure to ensure that Landsbanki created subsidiaries abroad left Iceland liable for the depositor losses.
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