10 Apr 2011

Iceland rejects repayment deal

6:19 pm on 10 April 2011

Voters in Iceland have rejected the latest plan to repay Britain and the Netherlands for costs incurred when the country's banking system collapsed in 2008.

Partial referendum results show 58% voting no and 42% supporting the plan reports the BBC.

Prime Minister Johanna Sigurdardottir said on state TV that the worst option was chosen with the vote splitting the nation in two.

Britain and the Netherlands spent 3.9 billion euros to compensate 340,000 of their citizens who lost money when Icesave, an online savings bank, went under at the height of the global financial crisis.

A previous repayment plan was overwhelmingly rejected when it was put to a referendum last March.

The new deal offers less onerous repayment terms.

The Landsbanki bank collapsed in 2008. British and Dutch investors lost some 4 billion euros (£3.5 billion, $US5.8 billion).

The bank had offered savings accounts in Britain and the Netherlands under the name 'Icesave'.

The British and Dutch governments had to reimburse 400,000 citizens who lost their savings and Iceland must now decide how to repay that money.

Under the terms of the latest rejected deal, Iceland would pay the money back with 3.3% interest between 2016 - 2046.

Under the previous proposal, the money was to be repaid at 5.5% interest between 2016 - 2024.

The BBC reports the actual cost to the state is expected to be much less than 4 billion euros, as the government says most of the repayment will come from selling the assets of Landsbanki.

The government does not expect the cost to exceed 50 billion crowns (£168 million).

Iceland's three main banks collapsed within days of each other in October 2008.

The government compensated domestic savers, but overseas customers faced losing all of their money.