An advertisement for Icesave, a failed Icelandic bank, in the Tube.
Back in October, while Americans were terrified that their economy was on the brink of collapse, Iceland's actually did. The country's three main commercial banks all failed within one week.
Now, Iceland's new government has revealed a deal that will rebuild banks, to the tune of $270 billion Icelandic kroner, or about $2.1 billion. Under the deal, the government will issue bonds to new banks, Islandsbanki, New Kaupthing and New Landsbanki, which are being built from the good assets of their failed predecessors.
There is, however, just one tiny roadblock in the way of Iceland's journey to economy recovery — $60 billion owed to foreign creditors. Iceland is depending on $5.1 billion loan from the International Monetary Fund to facilitate its financial recovery, but the government can't receive the full amount until the creditor claims are settled.
Some of those creditors have been offered stakes in the new banks, but they, as well as ordinary foreigners who had money in Icelandic savings accounts, are still owed additional billions. This week, the Icelandic parliament is set to debate a hotly-contested deal that would require Iceland to repay depositors up to $28,000 per account in exchange for $5.4 billion in loans from Netherlands and Britain.
The move to stabilize Iceland's banks is also being advanced by Iceland's recent bid to join the European Union. The New York Times reports that the country's new prime minister pledged to seek E.U. membership "as a means of securing the country's economic future.
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