Iceland to Pay Back Lost Deposits

Iceland has reached a deal to pay back the UK and Dutch governments the roughly €4 billion lost when its financial sector crumbled a year ago.

The thorny issue has held up badly needed funding from the International Monetary Fund and also threatened to derail Iceland's application to join the EU.

"An understanding has been reached with the UK and the Netherlands," the Icelandic government said in a statement Sunday (18 October).

The payback deal relates to an online high-interest account called Icesave that was formerly run by Landsbanki, one of three Icelandic banks that collapsed last October.

Hundreds of British and Dutch citizens lost their deposits in the account, forcing the UK and Dutch governments to step in and compensate their citizens.

The new agreement still needs to be approved by the Icelandic parliament that raised a series of objections to a previous draft payback plan.

The Icelandic lawmakers did eventually agree to the previous proposal but only after adding a list of amendments to delay the annual amount to be paid back and placing an expiry date on the payments that could have left part of the sum unpaid.

The UK and Dutch governments in turn raised a number of objections, with the new deal announced over the weekend an apparent compromise between the two sides.

Under the new terms, annual payments will not exceed six percent of the increase in GDP when measured against the 2008 level.

However it returns a previous Icelandic government promise to payback any outstanding debts at the end of the 2024 timetable, a key UK and Dutch government demand.

The proposal must now be voted on by the Icelandic parliament. Many opposition MPs remain fiercely opposed to the deal which they feel will saddle the country's citizens with debt levels for years to come.

And the issue remains extremely unpopular among Icelandic citizens who feel they are paying the price for the reckless behaviour of the country's bankers.

A recent poll also showed that a majority of Icelanders want the government to end its co-operation with the IMF.

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