Iceland, the Netherlands and the UK have completed the latest draft of a deal to settle the ongoing Icesave dispute. Initial reaction to the deal is largely positive, although the Icelandic parliament has yet to vote on it.
The leader of the Icelandic negotiators, the American lawyer Lee Buchheit, began his introduction to the deal by saying that the main question the negotiators faced was how to make a payment contract for a debt if one will not know the final amount for several years.
Buchheit told reporters that the assets from Old Landsbanki will likely cover the whole Icesave debt given time — although that is impossible to say with any certainty at this stage.
Iceland will begin to pay back the loans to the British and Dutch in 2016 and the length of repayment time will depend on how much of the debt is not covered by Landsbanki assets. If the amount payable by the state is lower than ISK 45 billion (USD 389.1 million), the amount will be paid off very quickly – possibly in just one year. If the amount of the loan is higher, the repayment period will lengthen accordingly – theoretically all the way to the year 2045 in the worst case.
The interest payable to the Dutch is 3 percent and 3.3 percent to the British — the difference coming because of the two countries’ differing loan finance ratings and systems.
Further clauses mean that interest would not have become payable until October this year, if the deal is finalised. Another proviso allows for Iceland to pay less if its tax revenues take an unexpected plunge and caps the percentage of GDP that can go to Icesave debt.
Buchheit said that the aim of this final contract is to recognise that at least some blame lies with all three countries; meaning that the contract has to be totally fair and that nobody should make any money from it.
Initial reaction to the contract in Iceland seems to be positive and there is little doubt that the deal is better than the one rejected by voters this March. Credit for the new deal will inevitably be split. Some will laud President Olafur Ragnar Grimsson for vetoing the last contract and forcing the countries back to the negotiating table. Finance Minister Steingrimur J. Sigfusson will have reason to be proud of himself if the deal comes into force, as his position on Icesave has been consistent throughout and the time and patience he has invested in the dispute could well come to symbolise his political career. Finally there is Lee Buchheit, the American lawyer appointed by Sigfusson to lead the Icelandic delegation in the latest round of talks. His rational and hard-headed attitude have likely been seminal in the creation of the latest draft.
Next, all three countries need to approve the deal at the political level before it comes into force. This is not the first time that committees have returned home thinking they have a good Icesave deal in their pockets: the first contract was amended by the Icelandic parliament so that the British and Dutch rejected it and the second was rejected by the Icelandic public after the president sent it to a referendum. Third time lucky…
Summary of the Negotiating Committee on the Outcome of Discussions with the UK and Dutch Governments concerning Icesave
http://eng.fjarmalaraduneyti.is/media/adrarskyrslur/Summary_of_the_Negotiating_Committee_concerning_Icesave.pdf
The most scary part of this deal is that as the previous 2 deals it is based on assumptions as Lee Buchheit made it very clear in his interview in Kastljós.
http://dagskra.ruv.is/sjonvarpid/4544991/2010/12/09/1/
Without seeing the actual Icesave III agreement, it looks like the Ragnar Hall issue has finally been resolved. According to my initial calculations, the only way we can get the total interest payments down to 45B ISK, is to use all of the Landsbanki recoveries to cover the 20K IceSave guarantee payments, instead of only half.
(you can see the initial analysis and calculations on my Icelandic blog, http://bjarnimax.blog.is)
If this is correct, I personally can probably accept this new IceSave agreement. Whether it is enough for most other people in Iceland remains to be seen.
If you’re wondering whether Iceland is due to get the shaft interest-wise after 2016, it’s not. From the link above:
“In the second phase, under the agreement the interest on any outstanding principal on the loans after mid-2016 will be the appropriate Commercial Interest Reference Rates (CIRR), or documentary credit interest, as calculated and published by the OECD, without any interest premium. These interest rates are generally the very lowest used in credit agreements between public parties.”
That’s currently 3.39% for the UK and 3.25% for the Euro
http://www.oecd.org/dataoecd/15/47/39085836.pdf
Looks like a total climb-down by the UK/NL to me, in that there clearly is absolutely no risk premium attached to this. This is the borrowing cost experienced by the UK/NL. I want Lee to negotiate with my bank for me!
The only thing Iceland has had to cave on is that the principal cannot be written off after X years. There’s a little waffle about whether it’s the TIF or the government paying, but the key is that the government guarantees the repayment and cannot extend that repayment beyond 2046. Don’t expect this loan to be paid off early. At that rate it’s like the US-UK WW2 loans – just too good a rate to pay back unless you have to :) .
from the Alþing .pdf document
the bank’s Resolution Committee has now acquired full control of its assets in the UK and the Netherlands. In its report to a creditors’ meeting on 9 November 2010, the Resolution Committee estimated that distributions would cover 86% of priority claims.
Does that mean all the (old) Landsbanki creditors, no matter if they loaned money to Landsbanki UK or Landsbanki in Iceland, if they wish to pursue legal action, they will have to do that in an Iceland court?
This link leads to a blank page now
http://eng.fjarmalaraduneyti.is/media/adrarskyrslur/Summary_of_the_Negotiating_Committee_concerning_Icesave.pdf
Yep, it’s been moved a bit. They’ve cut the “adrarskyrslur” from the link.
Here’s the source page in case they change the storage location again:
http://eng.fjarmalaraduneyti.is/publications/news/nr/13769
This is a bit of a general comment on the crisis but as a UK citizen, I was disgusted by the way my country’s government behaved towards Iceland in 2008. I was also disgusted by the way in which one of our most renowned journalists Jeremy Paxman interviewed the President of Iceland in January 2010 – it was disrespectful to say the least. Two billion Euros is a lot of money but, for the UK (population of 60 million), why all the fuss? It would go unnoticed if not paid back over the next 20 years. I join those who say they shouldn’t be compensating any of the investors including the Icelandic ones. It’s just going to make another crisis more likely. An apology from the UK government is unlikely but I do say sorry.
Peter Rhind says:
Well I’m disgusted that you think the UK should apologise to a country that allowed, facilitated and encouraged a bunch of criminals to steal from EU citizens (as well a Icelanders).
As for this deal. When/if its implemented it will be worth discussing, but I hope this issue is over.
Bad news!
The news agencies in Iceland are reporting this morning that the current IceSave agreement has a clause requiring Althingi and the President to pass a binding law authorizing the agreement before the agreements are finalized and signed. If these laws are not passed before the end of this year (18 days from now), UK and Netherlands can then unilaterally terminate the agreement.
Considering that the new agreements have not been even published or analysed yet, this drastically lessens the probability of a successful conclusion to this agreement.
The sad part is, that while this new agreement might very well be good enough to pass, but because of this stupidity, it might fail anyway. If the British and Dutch negotiators have nothing to hide, publish the agreements and allow us to accept them based on what terms they contain. They should have learned by now, secrecy and trickery will get them nowhere.
Should have finalised the agreement quicker, after all its been a long time in the making. This is the last negotiations on the subject according to the UK/NL.
>If these laws are not passed before the end of this year (18 days from now), UK and Netherlands can then unilaterally terminate the agreement.
I wouldn’t sweat it. The key word is “can”. It’s almost certainly in there to try to light a fire under the Althingi’s arse and get them moving on it, as well as creating an incentive for Grimsson to sign rather than kicking it off to referendum. Imagine the historical fallout if the Althingi passed it comfortably but he refused to sign it, the UK/NL terminated it, went to court and won.
Perhaps they just put it in though because they want to pencil “Cod Wars II” in for 2011? :D
BTW, the phrase “unilaterally terminate” is a bit emotive because, of course, Iceland is reserving precisely that right for itself :) .
Also, wasn’t there a similar clause in one of the earlier agreements that everyone ignored?
>If the British and Dutch negotiators have nothing to hide, publish the agreements and allow us to accept them based on what terms they contain.
Why should they? That’d be unnecessarily interfering in the affairs of another state. If Iceland wants to release the agreements to their people then they will. Hell, even if they don’t want to, it’ll probably be out this week – Icesave’s proven to be very leaky in the past.
To Bromley86:
It is important to remember that no matter how good this agreement actually is, it will be VERY difficult now to get it accepted by the Icelandic people. By letting the previous IceSave II agreement go to the national referendum, where it lost 92% to 1.5%, a major tactical mistake was made, that will be difficult to undo.
The people in Iceland are now as a result of the previous history, very suspicious of all the governments involved, especially our own. Any attempt to game the process, apply pressure, or use trickery, will only help those that want to turn the public opinion against it.
I do agree with you that based on previous experience, the agreements will probably be either published or leaked very soon. This will be a good thing, as it allows those of us still willing to consider the new agreements, to fully analyze the agreements and make accurate judgment whether the they are good or bad.
There is a trade war in the offing. EU may ban Icelandic exports, I wonder is this will have any impact on this agreement.
Looks like Fisy may get his wish:
http://www.grapevine.is/News/ReadArticle/Opposition-Parties-Reject-New-Icesave-Proposal
The Progs & movement are unimportant. But Bendediktsson is pretty essential, although perhaps a vote will see enough from the IP buiness camp back it to justify Grimsson passing it?
Didn’t take long :-)
The IceSave 3 agreements were leaked this evening on:
http://icesave3.wordpress.com
>Hell, even if they don’t want to, it’ll probably be out this week – Icesave’s proven to be very leaky in the past.
Record time! Don’t bother trying to Google-translate as the PDFs are in English already.
http://icesave3.wordpress.com/
As usual Bjarni explains the situation well :
” >The people in Iceland are now as a result of the previous history, very suspicious of all the governments involved, especially our own. Any attempt to game the process, apply pressure, or use trickery, will only help those that want to turn the public opinion against it. ”
Now we are dealing with the more reasonable UK and Dutch governments — despite all nonsense that people like Peter London did predict — unfirtauntely we still have our own unreasonable Red-Green coaltion here in the government seats.
It is just the wrong idea to try and force this end of Dec deadline. There doesnt seem to be much learning going on since the whole history of this IceSave saga.
But at least now we have our own Iceyleaks so can read the agreements now.
Ragnar H. Hall we do need to hear from.
But I expect when I read new IceSave agreement it will be reasonable — and likely to get support of many — if ONLY it is handled carefully.
it is not as if with the due process here in Iceland things go slowly. It is just matter of months.
Just follow reasonable steps to make sure that experts that we do trust — like Ragnar Hall — and Gylfi Magnússon — are in loop not the USELSS POLITICIANS WE DO NOT TRUST.
and I include ALL politicians here in that — not just useless Red Green politicians.
Thank the gods we do have the position of President to stop this losers in the government with just a slim majority in parliament from kicking us over the water fall.
I may not like the pea cock Ólafur Ragnar Grímsson but I am so glad that the position of President does exist and that he does perform that duty of a check on power of parliament as represementative of the people correctly.
It needs STRENGENTHING along lines of what is written about in the State on The Third Millenium by Hans-Adam II of Leistenstein.
>Ragnar H. Hall we do need to hear from.
No need. From a quick scan of the Pari Passu Agreement DNB TIF, it didn’t look to me like the priority had been changed.
There’s still the same allowance for Icelandic courts to rule in favour of the TIF re. priority, but nothing new that I could see.
To Bromley86:
Correct, there does not seem to be any change to the Ragnar Hall issue in the IceSave III agreements language.
Which leaves the question, how was the negotiation committee able to come up with less that 50B ISK (300M Euros) in total interest payments?
As this is mathematically impossible without applying ALL recoveries from the Landsbanki bankruptcy, they seem to be assuming for some reason that the Ragnar Hall clause will not apply.
>they seem to be assuming for some reason that the Ragnar Hall clause will not apply
Well, I’ve always assumed that as it’s the Icelandic courts that would decide the issue, it wouldn’t be a big problem :) . I’m still not sure why this hasn’t been fixed in Iceland already in atnticipation of an eventual agreement.
I’m also a little surprised at the total lack of in-depth analysis in the Icelandic media. I know people are probably a little war-weary re. Icesave, but it is a big deal for Iceland. Why isn’t there an Icesave page on the main newssites with a reguarly updated situation summary?
It’s hard reading material. The Guarantee Fund (Iceland) has the right to argue super priority claimant. If there are disputes, they are to argued under English law and location for a court of arbitration is The Hague – The Peace Palace:)
I can’t make it out, but I could interpret part of it, that the DNB are making claim to the assets recovered in excess of the minimum deposit guarantee.
I can’t make it out, but I could interpret part of it, that the DNB are making claim to the assets recovered in excess of the minimum deposit guarantee, but accept that Guarantee Fund have priority to the assets until the guarantee is covered.
I wouldn’t regard the time clause as bad news, It would be a strange affair if the Icesave agreement was passed into Icelandic law in late January and it was rejected by UK/NL.
I note that the Irish government’s agreement to bail out the EU Banks with State finance, did not even have to be brought before the Irish parliament in order to become valid. But the government did decide to bring the complex documents before parliament for a 4 hour discussion, followed by a vote.
On the Ragnar Hall front, I see that EFTA agreement has now been granted:
“Priority ranking of depositors confirmed”
http://eng.efnahagsraduneyti.is/Publications/nr/3184