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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