Iceland Meltdown
November 17, 2008
The European Commission on Monday said the agreement reached with several EU states on how to repay thousands of foreigns who had accounts in Iceland paves the way for aid to start flowing to the country, including a package from the International Monetary Fund worth as much as $6 billion.
Those accounts have been at the center of a tensions between Iceland and its European neighbors. Britain and the Netherlands have been delaying the IMF package, which has deprived Iceland of badly needed funds to revive its currency trade and restart the economy.
"We welcome the announcement by Iceland that it will apply EU rules on the protection of bank deposits," Amelia Torres, spokeswoman for the European Commission, said at a press conference on Monday.
IMF Managing Director Dominique Strauss-Kahn said on Saturday that the lender would finalize a rescue package for Iceland on Nov. 19.
Iceland Prime Minister Geir Haarde said that the deal over foreign accounts means that the IMF would discuss the Icelandic case on Wednesday and prepare to release the funds in the negotiated rescue package.
The agreement says that the Iceland government will cover desposits of insured despositers in "Icesave" acocunts in accordance with European Economic Area (EEA) law. It stipulates that retail and wholesale depositors are entitled to about 20,000 euros ($25,290) per account.
Economic meltdown
The global financial crisis has led to the collapse of Iceland's currency, the crown, and the government took over three of its largest banks.
Haarde told parliament recently that the country's public debt would increase from 29 percent of gross domestic product (GDP) at the end of 2007 to just over 100 percent of GDP at the end of 2009.
The cost of the banking crisis could be as high as 85 percent of GDP, or 1.1 trillion kronur (7.2 billion euros, 9.4 billion dollars), he said.
Frosty relations
Relations between Iceland and Britain and the Netherlands, in particular, have been strained over the issue of savers who had no more access to money desposited in the Icesave accounts of Landsbanki, one of the banks that collapsed last month.
About 300,000 Britons had accounts in Icesave, totalling about $6 billion. The UK government had used anti-terrorist legislation to freeze the assets of collapsing Icelandic banks in a bid to protect British savers' deposits.
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.
The Netherlands said it would extend a loan of 1.3 billion euros to Iceland to make this possible. Dutch authorities would then compensate depositors for anything above that amount up to 100,000 euros.
But as of the end of last week, a Dutch finance ministry spokeswoman said the legal documents to flesh out the memorandum of understanding had not been finalized.
The weekend agreement did not make it immediately clear how the Icebank deposits would be covered. The total amount is estimated to be about 600 billion Icelandic crowns (3.5 billion euros). Haarde said he hoped other countries would help cover the costs, and that additional funds could be raised by selling off the bank's assets.