ICELAND has declared an end to a three-year dispute with the UK and the Netherlands and promised to pay out $11.4bn (€8.02bn) from the estate of failed Landsbanki to cover all foreign depositor losses.
The most recent valuation of Landsbanki's assets shows the lender, which failed in October 2008 together with the rest of Iceland's financial system, will have enough funds to pay back more than double the $5.3bn backed by depositor guarantees, according to a report published by the bank's resolution committee yesterday.
The so-called Icesave dispute, named after the high-yielding internet accounts Landsbanki offered abroad, had soured Iceland's relations with the UK and the Netherlands after the bank's collapse left about 350,000 foreign depositors in the lurch. Since then, the island has pulled off an economic resurrection that has pushed the cost of insuring against an Iceland default below the average for the European Union.
Landsbanki can probably start paying claimants later this year, Economy Minister Arni Pall Arnason said. "These simple facts should change completely our understanding of the old Icesave dispute," Arnason added. "There is nothing to dispute any longer."
The government in Reykjavik is now hoping to sidestep an international court case that had seemed unavoidable after voters in April rejected an Icesave accord requiring taxpayer backing for the private debt.
The European Free Trade Association's Surveillance Authority "will have to consider all aspects of this matter before proceeding with any case", Arnason said.
"Now all depositors -- regardless of whether they were covered by depositor guarantees -- will get their money in full."
The island still needs to settle a domestic court battle questioning the status of priority claims, which include amounts owed to the foreign depositors.
Iceland, whose banks defaulted on $85bn in debt in 2008, is now emerging from its economic meltdown with faster growth and a smaller budget deficit than the euro area, according to the OECD. Credit default swaps (insurance) on Iceland's five-year debt were 278 basis points at the end of last week, compared with a 345 basis point average for the 27-member union.
The island's GDP will expand 2.9pc in 2012, compared with 2pc in the 17-member euro area.
Iceland's government deficit will narrow to 1.4pc of GDP, versus a 3pc shortfall in the euro bloc in 2012, the OECD said in May. (Bloomberg)