Iceland parliament approves debt bill

REYKJAVIK Fri Aug 28, 2009 11:09am EDT

REYKJAVIK (Reuters) - Iceland's parliament approved on Friday a bill to repay Britain and the Netherlands more than $5 billion lost in Icelandic deposit accounts, a move seen paving the way for further aid to repair the crisis-hit economy.

Prime Minister Johanna Sigurdardottir hailed the bill's passage and voiced hopes the issue could be resolved after weeks of rancorous dispute and soul-searching across the island.

"It's obviously best for all three nations to reach an amicable agreement on this for it is in no one's interest to see Iceland economically unable to meet its obligations," Sigurdardottir told Reuters after the vote.

She described the bill's passage as "an important step in the overall economic recovery" and said talks held with the British and Dutch so far had given her a sense of optimism.

An Icelandic government statement said consultations would begin with the British and Dutch, adding that the prime minister was hopeful about a mutually satisfactory resolution.

Britain's Treasury gave a cautiously positive response, saying it supported Iceland's commitment to repay its debt but would carefully review conditions placed on the loan.

The government had agreed a deal with Britain and the Netherlands in early June. But Icelanders became enraged by the so-called Icesave bill, fearful it could bankrupt the nation and were angry at having to pay the debts in the first place.

After weeks of political jockeying, amendments were added to the bill setting a ceiling on the repayment based on the country's gross domestic product.

"Personally, I'm relieved that it's over," said Finance Minister Steingrimur Sigfusson. "I don't use the word 'glad' since there isn't really anything to be happy about in this very tragic case for Iceland," he told Reuters.

An official tally of the vote showed 34 lawmakers voting in favor of the bill in the 63-seat parliament, with 15 against and 14 abstentions. The government-sponsored bill authorizes repayment to the two countries over 15 years.

ISLAND OUTRAGE

Anger over the issue is unlikely to end with the bill's passage and those arguing that Iceland should stay outside the European Union are expected to use the deal to stoke anti-Brussels sentiment.

Icelanders, already reeling from a crisis that has left many destitute, have objected to paying for mistakes made by private banks under the watch of other governments.

Their anger in particular is directed at Britain, which used an anti-terrorism law to seize Icelandic assets during the crisis last year, a move which residents said added insult to injury.

The government argued it had little choice but to make good on the debts if it wanted to ensure aid continued to flow. Rejection could have led to Britain or the Netherlands seeking to block aid from the International Monetary Fund (IMF).

SEB analyst Carl Hammer said the vote could give a boost to Iceland's efforts at financial rehabilitation. "This is one of the top contentious issues in the Icelandic financial crisis," Hammer said.

"This is important and it ensures that Iceland probably can continue counting on IMF support and that the EU membership will perhaps not pick up speed, but at least move forward."

Finance Minister Sigfusson said it was urgent Iceland now conclude the Icesave case. "There are many important issues connected to the solution of this problem."

The debts stemmed from billions of pounds and euros lost by some 400,000 savers who had placed money in high-interest online "Icesave" accounts run by Landsbanki, one of Iceland's top commercial banks which collapsed last year.

The British and Dutch governments eventually covered money lost in the accounts but have demanded repayment.

Up to 4 percent of Iceland's gross domestic product could be paid to Britain in sterling terms from 2017 to 2023 and up to 2 percent in euro terms to the Netherlands, according to a bill amendment. Also, Iceland has stipulated that a guarantee on reimbursement would be valid until June 2024.

(Writing by Adam Cox; Editing by Charles Dick)

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