Iceland to pay back Icesave cash

The Icelandic parliament has voted in favour of repaying more than $5bn (£3bn) to the governments of the UK and the Netherlands.

The so-called Icesave bill will reimburse funds paid by the governments to compensate those who lost money in the Icelandic online bank Icesave.

About 400,000 savers lost money when parent company Landsbanki collapsed last year.

The amendments will now have to be agreed by the UK and the Netherlands.

The deal was agreed in June, but was only passed after an amendment was added setting various limits to the payments.

Payment limits

The amount that will be paid is limited based on the level of Iceland's economic output, or gross domestic product (GDP).

The country will only have to pay up to 4% of its GDP each year to the UK and 2% to the Netherlands.

No payments will be made for the next seven years, but the bill says that if the full payments have not been made by 2024 then no further payments will be made. Effectively, there is only an eight year window for the loans to be repaid.

"The guarantee of the combined loans from the United Kingdom and the Netherlands constitutes the single largest financial commitment ever undertaken by the government of Iceland," said Iceland's prime minister Johanna Sigurdardottir.

In a statement, the UK Treasury said, "As you would expect, the UK will look carefully at any conditions placed upon the loan to ensure that they are reasonable".

Controversial bill

In the vote, 34 members voted in favour, 14 voted against and there were 14 abstentions.

The government hopes that the agreement to make payments to the UK and the Netherlands will help it to get more financial aid.

The bill has been controversial in Iceland, where some members of parliament have questioned why the government should be paying the debts of a private bank.

There is particular anger at the UK for using anti-terror laws to freeze Icelandic assets.

Loan guarantee

The problems stemmed from Iceland having to take over its three biggest banks.

First to lose independence was First Glitnir, closely followed by Landsbanki, which owns Icesave.

Finally, Iceland's biggest bank, Kaupthing, was nationalised in October.

Iceland's government blamed UK Chancellor Alistair Darling for undermining confidence in Kaupthing when it used anti-terrorism laws to seize Landsbanki's UK assets.

At the time, the UK loaned £2.3bn to Iceland so that the savers could be repaid.

The Icesave bill's passage means that the Icelandic government has agreed to guarantee the repayment of that loan (BBC NEWS)