UNCLAS REYKJAVIK 000270

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV IC
SUBJECT: ICELAND REACHES AGREEMENT ON ICESAVE, OPENING DOOR FOR IMF
DEAL TO BE APPROVED


1. (SBU) The governments of Iceland, the United Kingdom and the
Netherlands came to an agreement November 16 on the compensation for
deposits held in Icesave accounts, the online savings accounts
offered by now-nationalized Landsbanki. The Icelandic government
will pay the first EUR 20,000 (25,300 USD) for each Icesave account,
per the EU directive on deposit guarantees, but will not be
responsible for savings above that amount. The schedule of payments
and other details are still to be negotiated. The European Union
will extend a loan to Iceland for the purpose of paying off this
Icesave debt. The statement from the Icelandic Ministry for Foreign
Affairs said the talks were initiated by the French EU Presidency
and "led to a common understanding that will form the basis for
further negotiations." The statement also said the EU "will
continue to participate in finding arrangements that will allow
Iceland to restore its financial system and economy," and will
support Iceland in the IMF.

2. (SBU) The Icesave dispute reportedly held up the additional 4
billion USD in loans Iceland needed for the IMF package and the 2.1
billion USD IMF loan. Prime Minister Geir Haarde said that Iceland
had been told in no uncertain terms "that nobody will take part in
lending" to Iceland until the Icesave dispute was resolved.
Minister for Foreign Affairs Ingibjorg Solrun Gisladottir echoed
that the government had received clear messages not only from the UK
and Holland, but also from the EU member states and the Nordics.
IMF Managing Director Dominique Strauss-Kahn said the IMF Executive
Board would review Iceland's application on November 19.

VAN VOORST