Iceland to repay £2.3bn to Britain over bank crash despite outcry

The so-called Icesave bill was passed through the Iceland parliament, the Althingi yesterday.

Altogether 44 MPs voted in favour of the deal to repay funds that were lost when internet bank Icesave collapsed in 2008 – 16 voted against the proposal and three abstained.

The vote must now be ratified by Icelandic President Olafur Grimsson – a requirement that killed off a previous deal last year when he refused and instead sent the agreement to a national referendum where it was rejected.

There was no immediate word from Mr Grimsson on his position but before the vote he suggested he was happier with the current deal, which relaxes interest rates and allows a longer time for repayment.

A petition against the bill, which calls for Mr Grimsson to again use his right of veto, has attracted about 33,000 signatures, 10 per cent of the island’s population.

“This was a very clear result,” said Prime Minister Johanna Sigurdardottir. “I’m glad this is hopefully over.”

Finance Minister Steingrimur J Sigfusson said the vote was a “big step in the rebuilding of Iceland.”

Failure to settle the dispute has had repercussions for Iceland’s economic recovery from the devastation caused to the tiny island nation by the global financial crisis.

Instalments from a $4.6bn loan from the International Monetary Fund that is linked to Iceland repaying its international debts have been delayed.

There also have been fears that the UK and the Netherlands, who are also owed billions and included in the deal, would block Iceland’s application to join the European Union until an Icesave agreement is signed into law.

Icesave, an online subsidiary of Landsbanki bank, collapsed along with its parent and Iceland’s other major banks in October 2008, leaving 340,000 UK and Dutch citizens out of pocket.

Local authorities, charities and individual customers saw their investments and savings wiped out.

The Netherlands and UK reimbursed their deposits in Icesave upfront and have been seeking repayment from Iceland ever since. The UJ is owed £2.3bn compensation.

Yesterday’s long-awaited agreement will see Iceland start repayments in 2016 and finish by 2046, at an interest rate of 3 per cent to the Dutch and 3.3 per cent to the UK.

MPs in the country last year voted for negligence charges to be brought against the former Prime Minister Geir Haarde, who led the country during events leading to the banking collapse in 2008.