News | Wednesday, 06 January 2010

Iceland blocks multi-billion repayment to Britain

The British Government’s already stretched finances came under further pressure yesterday as Iceland’s President vetoed the repayment of a GBP 2.3 billion loan from the British taxpayer. The cash was paid out by the British government in 2008 to compensate UK investors in Icesave, whose parent bank Landsbanki had collapsed. UK Chancellor Alistair Darling, handed over the money because he had promised that UK savers would not lose a penny to Landsbanki’s bankruptcy. Iceland’s official compensation scheme did not have the necessary funds. In June this year, the Treasury agreed an outline deal with Iceland for the money to be paid back and last week Iceland’s Parliament passed the “Icesave bill” - which would have allowed the repayment to be made over 14 years. Bottom of Form. However, Iceland’s President Olafur Grimsson, yesterday refused to sign off the bill after fierce political pressure from the country’s opposition party and a petition against the bill signed by nearly a quarter of the country’s voters. Under Iceland’s constitution there must now be a referendum on the issue. This is only the second time in Iceland’s history that the president has not signed into law a bill approved by parliament.The money represents 40 per cent of the country’s gross domestic product but Iceland said that it planned to repay it gradually to savers in the UK and Netherlands by 2024. The British and Dutch governments say more than 320,000 savers lost money when Landsbanki failed in October 2008.

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