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Iceland will pay back £2bn to UK – if it can

Posted by smeddum on August 31, 2009

Simon Watkins, Financial Mail

30 August 2009

This is money

Iceland has finally agreed to pay £2bn owed to the UK taxpayer after the collapse of its banks – but only if its own economy recovers.
Last week, the island’s 63-member parliament voted in a Bill designed to reimburse the British and Dutch governments. But amendments mean the payments will be capped and may not be made at all.
The payback follows the collapse last year of Icelandic banks, principally Kaupthing and Landsbanki, that left UK savers at risk of losing their cash. The Treasury stepped in to help UK customers, but insisted that the liability lay with Iceland and that the payout should be treated as a loan. A similar approach was adopted by the Netherlands.

Iceland will start repaying £2bn to the UK and £1bn to the Netherlands in 2016. But its repayments to the UK will be capped at no more than 4% of Iceland’s GDP.

The amendments also state that all payments will stop in 2024, regardless of whether the total is paid off.

Iceland’s GDP for 2008 would mean that the sum would just be paid off in time, but a slump in its economy could leave British taxpayers out of pocket.

A spokesman for the Treasury said that it supported the Icelandic government’s efforts to reimburse the UK.

‘The UK will look carefully at any conditions placed upon the loan to ensure that they are reasonable,’ he said.

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