Iceland took a step towards clearing the debris of its financial meltdown this morning, unveiling a deal with creditors of its failed banks and plans to capitalise the new ones.
The government said it expected the capitalisation to total about 270 billion Icelandic crowns (€1.48 billion) but this would be reduced to about 200 billion if the old banks subscribed to equity stakes in two of the new banks - Islandsbanki and New Kaupthing - as planned.
Iceland's main commercial banks - Glitnir, Landsbanki and Kaupthing - collapsed in the space of a week last October owing more than $60 billion to foreign lenders.
Restructuring the banking sector and repaying creditors, as well as stabilising Iceland's currency, are seen as key to reviving an economy in the clutches of a deep recession and placating foreign lenders.
"Our agreements announced today are a major step forward in the re-establishment of a strong banking system," Icelandic Finance Minister Steingrimur Sigfusson said in a statement.
"They allow for the recapitalisation of the banks, potentially at a significantly lower cost to the taxpayer than originally envisaged, and we believe will result in a fair and equitable outcome for all stakeholders."
Iceland agreed a $10 billion rescue programme with the International Monetary Fund and some of its European neighbours last year. The money will mainly go toward building up the country's currency reserves.
Reuters