No way should ordinary people pick up the tabs for failed banks.

UK and Netherlands to sue Iceland over lost deposits

The UK and Dutch governments are preparing court action against Iceland to recover 4bn euros (£3.5bn) lost when the country's bank system collapsed.

It follows a referendum in Iceland which rejected a repayment plan.

The UK said it was "disappointed" by the "no" vote, while the Dutch finance minister said the time for negotiations was "over".

Iceland's Finance Minister Steingrimur Sigfusson said that resolving the row in court would take at least a year.

The UK and the Netherlands say they are owed the money following the collapse of Icelandic savings bank Icesave. British and Dutch depositors were bailed out by their governments, which are now demanding their money back.

Iceland held a referendum at the weekend on a repayment plan, but with about 90% of the vote counted, 59.1% were against and 40.9% in favour.

Johanna Sigurdardottir, Iceland's Prime Minister, said the rejection meant "the worst option was chosen" and had split the country in two.

UK Treasury minister Danny Alexander said the decision was "disappointing" and the matter would go to an international court.

Dutch Finance Minister Jan Kees de Jager said he would be consulting Britain about taking further steps against Iceland, but added that the matter would likely end up in court.

"I am very disappointed that the Icesave agreement did not get through. This is not good for Iceland, nor for the Netherlands.

"The time for negotiations is over. Iceland remains obliged to repay. The issue is now for the courts to decide," Mr de Jager said in a statement.

The issue will now be referred to an international court, the European Free Trade Association Surveillance Authority.

Iceland's Finance Minister Steingrimur Sigfusson told a news conference that the dispute with Britain and the Netherlands would take at least a year to resolve in court.

"My estimate is that the process will take a year, a year and a half at least," he said. However, some analysts believe the legal process would take considerably longer.

Iceland's Landsbanki bank ran savings accounts in the UK and Netherlands under the name Icesave and investors there lost 4bn euros (£3.5bn; $5.8bn).

When it collapsed in 2008, the British and Dutch governments had to reimburse 400,000 citizens - and Iceland had to decide how to repay that money.

Mr Alexander, Chief Secretary to the Treasury, said on the Andrew Marr programme: "It's obviously disappointing... We tried to get a negotiated settlement.

"We have an obligation to get that money back, and we will continue to pursue that until we do... We have a difficult financial position as a country and this money would help," he said.

He added: "We have a very clear outcome of the vote. The bill was rejected by a clear majority so we proceed in accordance to that. I think it's very hard to interpret this in any other way than the fact that the Icelandic people are not prepared to accept payments or shoulder the burden unless there is a clear legal obligation to do so."

'Such a revulsion'

Iceland's parliament had backed the deal, but President Olafur Ragnar Grimsson refused to sign it, triggering the referendum.
A previous deal, imposing a tougher repayment regime, was rejected in a March 2010 referendum by 93% of voters.

Finance Minister Steingrimur Sigfusson appeared to rule out a third attempt to persuade voters to accept a repayment deal.

"I think we're getting a very clear sign from this referendum, that further negotiations are ruled out. No use in trying that again."

Backers of a "yes" vote had argued the repayment deal was the best way to resolve the issue in terms of cost and risk to Iceland.

The "no" camp said the Icelandic taxpayer was under no legal obligation to pay for a private bank's losses and that the deal would put a heavy burden on the nation.

Longer period, lower interest

Under the terms of the rejected deal, Iceland would have paid the money back with 3.3% interest to the UK, and 3% to the Netherlands, over 30 years between 2016 and 2046.

Under the previous proposal, the money was to be paid back with 5.5% interest between 2016 and 2024.

The actual cost to the state was expected to be much less than the 4bn euros owed, as the government said most of the repayment would come from selling the assets of Landsbanki.

The government has said it did not expect the cost to exceed 50bn kronur (£168m).

Analysts say a resolution of the issue is vital to Iceland's prospects for recovery because it would allow the country to return to the financial markets to fund itself.

Solving the dispute is also seen as key to Iceland's chances of joining the EU.

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

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

The issue sparked a diplomatic row between Iceland and the UK, and created uncertainty over Iceland's economic recovery.

So Iceland won't pay and it is a good news for you? That money will have to be paid by somebody and right now it seems that the British public will pick up the bill.

Yes but I think that Iceland are being blackmailed into accepoting this deal. It is the british government passing the buck for failing to regulate the bank that was on our shore. I hope that all the periphery countries default on their debts. Iceland and Ireland were minnows compared to their bank debts. No way should ordinary people pick up the tabs for failed banks.

+1 the Icelandic people shouldn't have to pay for other people's greed and stupidity...

Why should tax payers pay for banks mistakes?

And how would you feel, if it was a British bank that had caused the problems and you had to pay that money to Iceland?

And how would you feel, if it was a British bank that had caused the problems and you had to pay that money to Iceland?

It wasn't.