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Viewing cable 09REYKJAVIK102, ICELAND SETTLES ICESAVE DEPOSIT GUARANTEE DISPUTE WITH THE

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Reference ID Created Released Classification Origin
09REYKJAVIK102 2009-06-08 17:05 2011-01-13 05:05 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Reykjavik
VZCZCXRO3406
OO RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHRK #0102 1591717
ZNR UUUUU ZZH
O 081717Z JUN 09
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4086
INFO RHEHNSC/NSC WASHDC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHLO/AMEMBASSY LONDON PRIORITY 0154
RUEHTC/AMEMBASSY THE HAGUE PRIORITY 0032
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
UNCLAS REYKJAVIK 000102 
 
STATE FOR EUR/NB 
NSC FOR HOVENIER 
TREASURY FOR ERIC MEYER AND LARRY NORTON 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958:  N/A 
TAGS: PGOV ECON EFIN PREL IC
SUBJECT:  ICELAND SETTLES ICESAVE DEPOSIT GUARANTEE DISPUTE WITH THE 
UK AND HOLLAND 
 
Ref:  Reykjavik 101 
 
1.  (U) On June 5, Icelandic media reported that the GOI and the 
Governments of the UK and the Netherlands had struck a deal over the 
Icesave dispute.  The GOI has agreed to take a $5.44 billion loan 
from the UK and the Netherlands to repay the minimum deposit 
guarantee to those who lost their savings with the collapse of 
Landsbanki and its online savings unit Icesave.  The UK will lend 
Iceland GBP 2.35 billion ($3.76 billion) and the Netherlands EUR 1.2 
billion ($1.68 billion).  The loan will have a grace period of seven 
years, during which the Icelandic Treasury will not contribute to 
payments, and the total length of the loan is 15 years.  The loan 
has an interest rate of 5.5 percent which will start accruing 
immediately.  The Icelandic Depositors' and Investors' Guarantee 
Fund will issue bonds for the entire loan amount.   Landsbanki will 
be responsible for the Fund's payments (from their liquid assets and 
from future asset sales) while the Icelandic state will act as a 
guarantor. 
 
2.  (SBU) The Icelandic negotiation team of six was headed by former 
government minister and current Ambassador to Denmark, Svavar 
Gestsson, while the other five are representatives of the Ministries 
for Foreign Affairs, Finance and Business Affairs as well as the 
Central Bank.  Sesselja Sigurdardottir, First Secretary in the 
Icelandic Foreign Ministry's European Office, who sat in on the 
negotiations, confirmed to EmbOff that the agreement had been signed 
and that the major details outlined in the Icelandic media were 
correct. She stressed that the agreement is contingent upon the 
Parliament's approval of the State being a guarantor for 
Landsbanki's payments. 
 
3.  (SBU) Despite months of predictions that such a deal would be 
reached eventually, the media is reporting the signing of the 
agreement as an entirely new, shocking development and has estimated 
the debt to be at 3 million ISK ($24,000) per person.  The 
Progressive Party (PP) leadership called the terms a "terrible 
agreement" and described it as "selling the people into slavery". 
Bjarni Benediktsson, Independence Party (IP) Chair said that he is 
not happy with the agreement, but realizes that the GOI was in a 
very difficult position.  A visibly relieved UK Ambassador Ian 
Whiting described to EmbOff an amiable negotiation between the three 
sides, though he did note some concern over the public hammering the 
GOI is now taking over the agreement. 
 
4.  (SBU) It is unclear if the proposal will be supported at the 
Icelandic parliament and two Left-Green party (LG) MPs have not yet 
stated if they will vote for it.  For her part, LG Deputy Chair and 
Minister of Education, Katrin Jakobsdottir, lamented the opposition 
response to the proposed agreement, saying it was disappointing that 
politicians were arguing against a draft agreement that by their own 
admission they had not yet read.  However, she admitted to being 
pleasantly surprised at the muted reaction from IP Chair 
Benediktsson, terming it "almost a responsible statement, really." 
On June 8, four hundred people attended a protest against the 
agreement that was partly organized by the Citizens' Movement (CM) 
MPs in front of the parliament building at the same time as Finance 
Minister Steingrimur J. Sigfusson presented an oral report on the 
agreement.  CM MPs say they are not satisfied with the agreement -- 
some even questioning the principle of Iceland's acceptance of 
responsibility for the deposit guarantees -- and will try to call a 
referendum on the issue. 
 
5.  (SBU) Comment:  The government is not out of the woods yet, but 
has succeeded in removing a major irritant in its relations with EU 
member states as a whole and Britain and Holland in particular. 
This should smooth the way for a positive review at the IMF later 
this summer, as well as for a happier reception of any forthcoming 
EU membership application by Reykjavik.  That said, the major 
challenge lies in convincing the public that no better deal could 
have been reached, and that simply refusing the pay was not a 
realistic option for a small island nation with European ambitions. 
The lukewarm -- or even negative -- reaction from some of FinMin 
Sigfusson's fellow party members shows just how much work lies 
ahead. 
 
KLOPFENSTEIN