UK lends Iceland £2.2billion to repay Icesave customers

21 November 2008 / by Rachael Stiles
Iceland is to get a £2.2billion loan from the UK so that it can afford to repay the money it owes to UK Icesave customers, as part of an International Monetary Fund deal.

To stabilise its economy after it collapsed last month, Iceland will borrow a total of $10.1billion as part of the package brokered by the IMF, which will come from the UK and other countries including Germany, the Netherlands, Denmark, Sweden, Norway, Russia and Poland.

The UK Government agreed to lend Iceland the money to help it honour its guarantee to UK savers whose money was locked in collapsed Icelandic banks, such as Icesave, where UK customers had some £4billion in online savings accounts.

The IMF has now put up $2.1billion, paving the way for other nations to offer assistance, but the loan was held up due to the dispute between Iceland with the UK and the Netherlands over how it would repay savers.

The Icelandic Government previously said that it would not be able to repay its foreign customers and would only offer compensation to its domestic savers, but changed tack this week in order to comply with EU regulations and secure its much-needed injection of cash.

Yesterday, the UK, Germany and the Netherlands released a joint statement saying that they will provide a combined $6.3billion to cover Iceland's compensation costs to their nation's savers.

The total loan will be made available over a two year period, with $827million being made available immediately and the remainder in instalments, subject to review.

The loan will help Iceland to restore confidence in its economy, which "is in the midst of a banking crisis of extraordinary proportions," according to John Lipsky, the IMF’s deputy managing director.

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