Alistair Darling yesterday urged Iceland to ratify a Bill that would see the recession-hit country repay more than €3.8bn lost by savers in Britain and the Netherlands when the online savings bank Icesave went bust in 2008. The Chancellor, pictured right, described the legislation as "very important".
The Bill has been approved by the Reykjavik parliament but the President, Ólafur Ragnar Grímsson, has so far declined to sign it into law. He knows that the compensation package, which would be paid to the UK and Dutch governments because they reimbursed Icesave's customers, is deeply unpopular in Iceland. At the weekend he was given a petition, signed by more than a quarter of all Icelanders, urging him not to sign the Bill passed by MPs last week.
Those against the legislation point out that the compensation represents 40 per cent of Iceland's total gross domestic product, while a poll in August showed that 70 per cent of Iceland's 320,000 citizens opposed the Bill.
Despite the strength of feeling in Iceland against the repayments, Mr Darling yesterday urged Mr Grímsson to act. He said: "We have spent many, many months in very productive meetings with Icelandic authorities and the Icelandic government to enter an agreement to make sure that the money was reimbursed to us." Iceland's MPs fear that its application to join the European Union will be blocked if it fails to compensate Britain and the Netherlands. Economists believe membership of the bloc is key to reviving Iceland's economy, which has been battered by recession.
The value of Iceland's currency, the krona, has nearly collapsed and her economy declined by 8 per cent last year. It is not expected to start growing for at least another 12 months.
Landsbanki, which operated Icesave, Kaupthing and Glitnir, all collapsed after wholesale banking markets went into meltdown following the fall of Lehman Brothers. The British Government guaranteed up to £50,000 of savings for each of the 320,000 Icesave account-holders in the UK.