The government of Iceland announced yesterday that the latest round of talks with the governments of the Netherlands and the UK regarding the Icesave loan terms had adjourned without a final resolution.
“We had hoped to be able to reach a consensual resolution of this issue on improved terms,” said Steingrímur J. Sigfússon, Iceland’s Minister of Finance in a press release from his ministry, “but this has not as yet been possible.”
“Constructive proposals were made by both sides during these talks, but significant differences remain. We will now consult with our negotiating team once they are back in Iceland,” Sigfússon added.
Representatives of the three governments have been meeting in London, on and off, for the past two weeks. Now it appears that no new agreement can be reached in time for the Icesave referendum.
On March 6 Icelandic voters will go to the polls to vote on whether to approve the terms of an Icesave deal negotiated with the British and Dutch governments last summer, the press release explained.
The law approving the earlier deal was put to a referendum by Iceland’s president, Ólafur Ragnar Grímsson, on January 5.
The British media have used words such as “collapse” and “breakdown” to describe how the Icesave talks ended yesterday, and that hopes have been “dashed” in avoiding the upcoming referendum.
British officials told the Financial Times that Iceland had “rejected an offer to soften repayment terms.”
Apparently, the UK and the Netherlands had offered a two-year interest holiday on repayments, which is estimated to be worth USD 600 million (EUR 440 million) over the vetoed deal, and a reduced interest rate of 2.75 percentage points above Libor.
British officials described the offer as “exceedingly generous.” In the short term this would have been lower than the 5.55 percent interest included in the vetoed deal.
According to the Financial Times, the UK Treasury said Britain and the Netherlands were “disappointed” that, despite their “best efforts over the past year and a half,” Iceland was “unable to accept our best offer.”
The newspaper reported Iceland had rejected the offer on the basis that the interest was still too high to secure domestic political support for the agreement. The Icelandic opposition parties have accused the British and Dutch governments of trying to profit from Icelandic taxpayers.
According to visir.is, reports that the Icelanders had walked out of the meeting room are untrue. “This is absolutely false,” said Gudmundur Árnason, one of the members of the Icelandic negotiation team. “The meeting was held in the Icelandic embassy and it would never have crossed our mind to leave them there.”
Mbl.is stated that the Icelandic team had suggested a three year period of no interest and a scale of rising interest from 2.5 percent in 2012 up to 3.5 percent in 2016.
This would mean an effective interest rate of 1 percent over that time period. Earlier reports had indicated that British Finance Minister Alistair Darling was willing to have a full seven years of no interest payment, but the Dutch rejected that suggestion.