Sigrún Davíðsdóttir's Icelog

Tonight, the Icelandic Icesave-negotiation team, led by the American lawyer Lee Buchheit, introduced the new Icesave-agreement at a press conference in Reykjavik. Buchheit pointed out that the fundamental assumption was that the Landsbanki assets will cover the Icesave-payment, the first €20.000 on each Icesave-account, that the Dutch and the British government paid to the deposit holders. The total amount is $5bn. Consequently, the amount may change in ISK but the currency risk is offset by the fact that most of the assets are foreign.

Early next year, Iceland has to pay ISK25bn, interests for 2009-2010. The Icelandic deposit guarantee fund already has ISK20bn. Iceland will start to pay its Icesave bill in six years, in June 2016, quite some time to prepare. If the government at that time will have to pay less than ISK45bn, £246.7m it will pay the whole amount and that ends the matter. Buchheit seems to think this is likely since the Landsbanki assets will cover majority of the payments. This unavoidably means that other creditors than Icesave depositors won’t get much.

If the amount due for the Icelandic government will be more than ISK45bn the payments will be stretched out, at most to 2046(!) – Icesave will hardly cause Iceland to default as some Icelanders have feared.

The interest rates are of great interest: 3,3% to the UK, 3% to the Dutch government, reflecting the different cost of borrowing for the two countries. The Icesave-negotiation team underlined that the outstanding money to be paid isn’t a proper loan. It’s a distressed situation, not a loan. It’s acknowledged that all countries bear some responsibility and this agreement, i.e. the interest rates, can’t be compared to the bail-out loans to Greece and Ireland. Famously, Greece is paying 5,3% on its bail-out package and the average interest rates for Ireland is 5,8%.

Now that the negotiation has ended it seems that the opposition in Althing, the Icelandic parliament, is positive towards the agreement. The opposition suggested Lee Buchheit for the job and also nominated another team-member. Now parliament has to pass an Icesave-bill – and then it remains to be seen what the president does. A year ago, the parliament did indeed pass a bill but the president refused to sign the law and sent it out for a referendum. Before that referendum was held it was already clear that it would be renegotiated.

*An English outline of the deal is here.

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