Iceland sued by United Kingdom

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After the collapse of Iceland’s Kaupthing Bank back in 2008, the UK has officially reported that they are suing Iceland for the billions of dollars lost in the crisis according to statements made last Monday.

The dispute between countries, which has steadily become bitter, has lead to the situation being handled by the courts. Danny Alexander, chief secretary of the Treasury, stated that the British government has “an obligation to get that money back, and we will continue to pursue that until we do.”

Iceland recently held a vote to repeal a law that was set to solve the money issues between the two countries. According to a CNN article, “Six out of 10 voters in the referendum on Saturday opposed the law, the government said in a statement Sunday, saying turnout was high.” To that, Alexander responded to the Icelandic vote saying it was “disappointing” and that “we have a very difficult financial position as a country… This money could help.”

This whole fiasco dates back to 2008, when the Kaupthing Bank collapsed. The bank had about $56.7 billion in assets. The bank fell, along with the country’s two other largest banks. According to an article in the Wall Street Journal, “Combined, the three financial institutions accounted for around three-quarters of Iceland’s stock-market value. Their loans and other assets totaled about 10 times the country’s gross domestic product.” The article went on to say that “Kaupthing was subsequently split into a ‘bad’ bank, holding soured investments, and a healthy institution named Arion Bank.”

Of the three banks that collapsed, Kaupthing had the largest operation in the U.K.

When the collapse of Kaupthing occurred, Britain and the Netherlands bailed out savers in their own countries with more than $5 billion dollars. It has been a struggle since to reclaim the money from Iceland.

According to the same CNN article, under a European Union directive, Iceland is required to pay back the bailout money to both Britain and the Netherlands. Iceland has also been reported to say it would “honor its international obligations.”

Netherlands Finance Minister Jan Kees de Jager said he was “very disappointed about the decision of the Icelandic electorate not to agree with the agreement reached between Iceland, the UK and the Netherlands,” and that the “time for negotiations was over. Iceland remains obliged to repay. The issue is now for the courts to decide.”

Iceland continues to attempt to find ways to fix their economy by receiving loans from the International Monetary Fund. They loaned the country $2.1 billion in November 2009, and said that repaying Britain and the Netherlands. Iceland also has attempted to apply for European Union membership, but both the Netherlands and Britain could block this motion.

As of now, no court date has been set to settle the matter.