Iceland to repay UK for lost savings

By Adam Cox and Avril Ormsby

REYKJAVIK/LONDON (Reuters) - Resolving a thorny diplomatic dispute, Iceland struck a deal to reimburse Britain and the Netherlands for billions of pounds and euros owed to savers with Icelandic accounts, the nations said on Saturday.

Icelandic Prime Minister Johanna Sigurdardottir hailed the agreement as a milestone in the island's efforts to recover from a devastating financial crisis late last year.

"The settlement of this very difficult issue is an important step for us in regaining our credibility and the confidence of the international community," Sigurdardottir told a news conference.

"It was never an option for us not to pay our debts, even if they were not established or initiated by the Icelandic Treasury," she said.

Some 300,000 savers in Britain, and others in the Netherlands, had funds deposited in Icesave accounts run by Landsbanki, one of three top Icelandic banks that failed in October 2008 when the country's financial system collapsed.

Diplomatic relations between Britain and Iceland became strained as the British government used anti-terror legislation to seize Icelandic assets.

Reykjavik, which saw the British move as adding insult to injury, responded by threatening to sue the British government.

The dispute took on huge importance: Much-needed financial assistance from the International Monetary Fund was delayed until Iceland agreed last November that it would be responsible for repaying the money owed to Icesave savers.