An Irish scheme to guarantee bank debts with a duration of less than three months has met with disapproval from Frankfurt. The European central bank is in favour of eurozone countries guaranteeing debt with durations between three months and one year. Ireland’s plan to guarantee even shorter term debt would mean different policies between member states.
An ECB opinion, signed by Jean-Claude Trichet, said: “Unco-ordinated decisions among members states should be avoided as they may involve a fragmentation of the euro area money market.” The ECB also noted that the scheme had no restrictions on the types of debt considered acceptable.
The current disagreement does not concern whether or not Iceland will repay. They have already agreed to repay €20,887 to the British and Dutch governments per head (the governments have already repaid depositors, in full and to a maximum of €100,000, respectively).
Indeed, the President has just reaffirmed this on Newsnight. No, the disagreement concerns the maximum liability and state guarantee of repayments. A potted history follows.
Two loan agreements were signed on 5 June 2009 between Iceland’s Depositors’ and Investors’ Guarantee Fund and the Icelandic state on the one hand, and the UK and Dutch governments on the other. In addition, a special settlement agreement was concluded between the British Financial Services Compensation Scheme and the Icelandic Guarantee Fund. These loan agreements were meant to conclude the Icesave issue.
The deal, agreed under English law, arranged loans from the UK and Holland, agreeing Iceland would repay them in 32 equal instalments starting on 5 June, 2016 and ending 5 June, 2024. Repayments would be fixed at 5.55 per cent. Maximum annual payments would be based on the growth of the Icelandic economy, fixed at a baseline year (effectively £2.35bn to the UK and €1.33bn to the Netherlands). The minimum deposit guarantee of €20,887 was in accordance with EU directive 94/19/EEC.