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Iceland: Icesave Bill Adopted to Guarantee U.K., Netherlands Loans

(Feb. 22, 2011) The Althingi, Iceland's Parliament, passed a bill on February 16, 2011, on Icesave deposits, the high-yield savings accounts offered by the online bank Icesave in the Netherlands and the United Kingdom. The purpose of the legislation was to enable the Icelandic government to guarantee loans from those two countries to cover Dutch and U.K. depositor claims stemming from the collapse of Icesave's parent company, Landsbanki Islands h.f. Passage of the bill comes more than two years after the Iceland financial system's near collapse in October 2008. The more than 300,000 foreign depositors who lost their money have been reimbursed from their domestic deposit insurance schemes, depleting the Dutch and U.K. treasuries of over US$5 billion in total. (Omar Valdimarrson, Iceland Passes Icesave Bill, Mending U.K. and Netherlands Ties (Feb. 16, 2011), Bloomberg Law online subscription database; Andrew Bowen, Icelandic Parliament Approves Icesave Repayment Deal, DW-WORLD.DE (Feb. 16, 2011),,,14845630,00.html; Andrew Ward, Iceland Parliament Backs Icesave Deal, FT.COM (Feb. 16, 2011),

The agreements with the Netherlands and the U.K. on which the new law is based, were signed on December 8, 2010. (Lög um heimild til handa fjármálaráðherra til að staðfesta samninga, sem áritaðir voru í London 8. desember 2010, um ábyrgð á endurgreiðslu Tryggingarsjóðs innstæðueigenda og fjárfesta til breska og hollenska ríkisins á kostnaði af greiðslu lágmarkstryggingar til innstæðueigenda í útibúum Landsbanka Íslands hf. í Bretlandi og Hollandi og greiðslu eftirstöðva og vaxta af þeim skuldbindingum (Feb. 16, 2011), Althingi website,; for background information on other Icesave bills and documents, see News and Press Releases, Althingi website, (last visited Feb. 18, 2011).)

Legislators voted 44-16 in favor of the bill, with three members abstaining. President Olafur Ragnar Grimsson must sign the legislation in order for it to take effect, but Grimsson is under pressure from the public to reject the bill and put it to a referendum. More than 32,000 citizens have reportedly signed a petition supporting such steps; however, according to one reporter, “the broad support in parliament and questions surrounding the authenticity of the petition make a veto unlikely.” (Bowen, supra.) On January 5, 2010, Grimsson had blocked an agreement on the debt that was approved by the legislature in December 2009, on the basis of a petition signed by a quarter of the country's 318,000 inhabitants, and a referendum held in March 2010 saw 93% of voters reject the bill. (Valdimarrson, supra.)

In the view of Iceland economist Valdimar Armann, although the new Icesave agreement is a significant improvement for Iceland in regard to interest payments, in particular, “it carries significant risk for the Icelandic government in the form of currency risk and the risk of total proceeds from divesting Landsbanki assets. … If the Icelandic krona weakens significantly it could triple the final cost.” (Id.) The amount Iceland must repay is the same under this latest agreement (€3.9 billion, or about US$5.3 billion), but the time table for repayment is more gradual and lower interest rates apply, with €1.3 billion (about US$1.8 billion) to go to the Netherlands at 3% interest between 2016 and 2046 and €2.6 billion (about US$3.5 billion) to the U.K. at 3.3% interest. (Bowen, supra.)

Passage of the bill paves the way for Iceland's return to the international bond markets, because its credit rating “is likely to rise with Moody's Investors Service, Standard & Poor's and Fitch Ratings”; since January 5, 2010, when Grimsson vetoed the former bill, those services have ranked Iceland's debt as junk bonds. (Valdimarrson, supra.) Moreover, implementation of the agreement may help expedite Iceland's joining the European Union. The Icesave dispute had been “an effective roadblock” to Iceland's accession to the EU despite the country's “relatively fast pace” in working towards that goal since negotiations began in July 2010. (Bowen, supra.)