Icesave May Increase State’s Debt by Three Percent

The net debt of the Icelandic state treasury will increase by approximately three percent if the new Icesave repayment agreement with the UK and the Netherlands which was presented last week will be passed as legislation.


Minister of Finance Steingrнmur J. Sigfъsson will present the new Icesave bill in parliament today.

Currently, the Icelandic state is indebted by nearly ISK 600 billion (USD 5.2 billion, EUR 3.9 billion), which is almost 40 percent of the gross domestic product (GDP). If the Icesave debt is added to that amount, the percentage goes up to 43.4 percent of GDP, Frйttabladid reports.

Minister of Finance Steingrнmur J. Sigfъsson will present the Icesave bill in parliament today. In a report accompanying the bill, various effects of the new agreement are estimated.

The report states that the Landsbanki resolution committee’s estimate that 86 percent of the bank’s assets can be reclaimed is a cautious estimate. If the reclamation percentage increases, the amount to be covered by the state treasury drops.

The state treasury is now expected to cover ISK 47 billion (USD 404 million, EUR 303 million).

According to the report, currency defenses are built into the agreement, so fluctuations of the Icelandic krуna are not likely to have a negative impact on the payback scheme.

However, Morgunbladid reports that a 20 percent depreciation of the krуna would cost the state treasury ISK 90 billion (USD 775 million, EUR 580 million), an amount which could almost double if a so-called offshore exchange rate is taken into account.

Morgunbladid also reports that a group of Landsbanki’s claimants offered to provide a loan to the bank to repay the insurance of the Icesave deposits, as much as EUR 21,000 (ISK 3.3 million, USD 28,000) per account, to British and Dutch authorities.

These proposals, conducted by Deutsche Bank on behalf of the claimants, were allegedly presented to British and Icelandic authorities, both of whom responded positively to the proposals because the UK would be repaid immediately and the Icelandic state would not have to cover any of the debt.

The claimants are surprised that the Icelandic government did not attempt to promote the proposals in the Icesave talks.