A new bill on the state guarantee on the Icesave loans was submitted by the government at the Icelandic parliament, Althingi, yesterday. The bill includes amendments to the Icelandic Icesave state guarantee legislation, passed by parliament in August.

The Althingi parliament. Copyright: Icelandic Photo Agency.

Negotiations between Icelandic, British and Dutch authorities were resumed after Althingi passed the legislation, introducing certain preconditions to the original Icesave agreement reached between the three governments in June. The second round of negotiations concluded on Sunday.

The finance ministers of Iceland, the UK and the Netherlands are obligated, according to a joint statement released along with the new Icesave agreement, to maximize the value of Landsbanki’s assets, Fréttabladid reports.

Iceland’s Minister of Finance Steingrímur J. Sigfússon said it is a joint matter of interest for the three nations, considering that a large part of Landsbanki’s assets is located in the UK and the Netherlands.

According to Sigfússon, this measure might eventually lower the claim that falls on Iceland because of Icesave.

The statement, published on ruv.is, reads that the governments of Iceland, the UK and the Netherlands are determined to work together on the Icesave issue and solve all matters of disagreement that might surface. Each negotiating party has the right to resume discussions.

“The finance ministers of Iceland, the UK and the Netherlands admit that the discipline necessary in Iceland’s budget following Iceland’s acceptance of the Icesave loan arrangement won’t be easy for the Icelandic nation,” the statement continues.

In the statement, the ministers also declare support for the International Monetary Fund’s review of the economic stabilization program for Iceland. Sigfússon told Fréttabladid that this item is of special importance. “It means that they admit the connection [between Icesave and the IMF] and that they won’t prevent the review from taking place.”

The solution of the Icesave debate, in addition to financial support from other European countries and the IMF, is considered an important step towards improving Iceland’s position in international markets and granting Iceland access to these markets.

Morgunbladid reports that if the Icelandic króna depreciates during the loan period of the Icesave agreement, the cost covered by the Icelandic state could increase by ISK hundreds of billions (ISK 100 billion = USD 810 million, EUR 500 million).

The legal environment surrounding the settlement of the bankrupt estate of the old Landsbanki is such that there the Icesave agreement is subject to extensive risk of the foreign exchange rate changing.

The Depositors’ and Investors’ Guarantee Fund of Iceland’s claim to the bankruptcy estate of Landsbanki is ISK 670 billion (USD 5.4 billion, EUR 3.4 billion), while the fund’s debt to the UK and the Netherlands is in a foreign currency and therefore increases with the depreciation of the ISK, Morgunbladid explains.

Click here to read more about Icesave and here to read more about Iceland and the IMF.