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Cablegate: Netherlands: Next Steps On Icesave

VZCZCXYZ0605
PP RUEHWEB

DE RUEHTC #0106/01 0501716
ZNY CCCCC ZZH
P 191716Z FEB 10
FM AMEMBASSY THE HAGUE
TO RUEHRK/AMEMBASSY REYKJAVIK PRIORITY 0049
RUEHC/SECSTATE WASHDC PRIORITY 3788
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASH DC PRIORITY

C O N F I D E N T I A L THE HAGUE 000106

SIPDIS

STATE PASS FEDERAL RESERVE BOARD - INTERNATIONAL DIVISION,
TREASURY FOR IMI/OASIA.VATUKORALA, USEU FOR TREASURY
ATTACHE MATT HAARSAGER

E.O. 12958: DECL: 02/19/2020
TAGS: ECON EFIN PGOV PREL NL IC
SUBJECT: NETHERLANDS: NEXT STEPS ON ICESAVE

REF: A. THE HAGUE 11
B. REYKJAVIK 13

Classified By: Acting Political-Economic Counselor Eric Falls for reaso
ns 1.4 (b) and (d).

1. (C) Summary: The Government of the Netherlands (GONL)
believes the existing Dutch and British loan agreements with
Iceland will be resoundingly defeated in a March 6 Icelandic
referendum. The GONL therefore plans to offer the Government
of Iceland (GOI) new interest terms on its loan during the
week of February 22 in hopes of avoiding the referendum
altogether. The Dutch offer likely will entail an &interest
holiday8 for part of the term of the loan, or changing the
current fixed interest rate to a floating one. Regarding the
confidential State Department cable on the Icesave issue that
was leaked to the Icelandic press on February 18, the GONL
expressed no surprise, noting the continuous information
leaks coming from Iceland throughout the Icesave debacle.
End summary.

2. (SBU) Nicole Bollen, Coordinator for Debt Issues at the
Dutch Ministry of Finance, briefed ECONOFF February 19 on
next steps in the Icesave case. The GONL, led by Finance
Minister Wouter Bos, has met with Icelandic delegations
several times in recent weeks to find a solution to the
current impasse. The GONL remains firm that it will accept
nothing less than full repayment of the 1.3 billion euro (USD
1.8 billion) loan it issued to the GOI in October 2008 to
help the GOI repay Dutch deposit holders after the bankruptcy
of Internet bank Icesave, part of the Icelandic bank
Landsbanki (ref A). The British government similarly loaned
Iceland 2.5 billion pounds (USD 3.5 billion) to help repay
its deposit holders. Iceland,s parliament passed a bill in
December setting out repayment terms for both loans, but
President Grimsson refused to sign it on the grounds that the
terms were overly harsh. His refusal triggered a national
referendum on the deal scheduled for March 6.

3. (SBU) Iceland,s Finance Minister Sigfusson, accompanied
by leaders of the Independence and Progressive opposition
parties, met January 29 with Dutch Finance Minister Bos and
UK Financial Services Minister Myners in The Hague. At that
meeting, the parties agreed upon &The Hague Principles8
that must be met in any revised plan to repay the Dutch (and
British) loans. These principles are (1) full repayment of
principal, (2) a concise proposal, (3) a quick end to
negotiations (i.e. before the March 6 referendum), and (4)
united &cross-party8 political support in Iceland. (Note:
The presence of Icelandic opposition parliamentarians in the
meeting was intended to demonstrate that &cross-party8
support that the Dutch and British require for any successful
renegotiation of the loan terms. End note.)

4. (C) Icelandic finance officials and opposition
parliamentarians subsequently presented new options to their
UK and Dutch counterparts in meetings in London on February
15 and 16. According to Bollen (who did not attend the
meetings), the first proposal offered by the GOI on February
15 was &outrageous.8 It did not guarantee full repayment
of principal and offered no interest payments at all. The
second proposal on February 16 was only &slightly better,8
with the GOI offering to repay principal ) over a long
period of time ) but no interest payments. The GONL
Qperiod of time ) but no interest payments. The GONL
rejected both offers on the grounds that (1) they did not
meet the agreed-upon &Hague Principles,8 and (2) the
refusal to pay interest set a dangerous and unacceptable
precedent for sovereign debt and other key Paris Club issues.

5. (C) According to Bollen, the GONL believes the existing
loan agreements with the Netherlands and UK will be
resoundingly defeated in the March 6 Icelandic referendum.
This will require the governments of Iceland, the
Netherlands, and the UK to effectively to start over with
negotiating new repayment terms. To avoid this scenario, the
GONL is seeking a solution now that would obviate the need
for the referendum. We &must get clear of this,8 said
Bollen; &the entire issue has gotten way out of hand and has
become silly and destructive.8

6. (C) Bollen said the GONL therefore plans to &make an
offer8 to the GOI during the week of February 22. The GONL
is willing to negotiate on interest payments, but not the
core &Hague Principles.8 Bollen indicated that options
could include changing the current fixed interest rate of
5.55 percent to a floating rate for part of the repayment
period. Another option could be an &interest holiday8 for
part of Iceland,s seven-year grace period on the debt.

7. (C) Regarding the confidential State Department cable on
the Icesave issue that was leaked to the Icelandic press on
February 18 (ref B), Bollen said she was not surprised at
all. She described Iceland as a &sieve8 in which
information leaks are standard practice. &Every time we
have a confidential discussion with Icelandic officials, we
read about it the next day in the press.8

8. (SBU) Bollen will represent the Netherlands in the Paris
Club meetings on February 22-25 in Paris. She noted that she
has discussed Icesave developments regularly with U.S.
Treasury and State Department reps at recent Paris Club
meetings; she will seek them out again during next week,s
meeting and update them on developments.
LEVIN

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