Iceland seeks to allay European depositor fears

Iceland sought Saturday to allay the fears of European depositors in its Britain-based online bank Icesave whose collapse this week triggered a bitter clash with London.

Icelandic and British officials met in Iceland's capital Reykjavik Saturday to resolve their dispute, while the Nordic country managed to reach an agreement with the Netherlands.

"The agreement states that the Icelandic government will compensate each Dutch depositor up to a maximum of 20,887 euros (28,240 dollars)," a joint statement said.

"The Dutch government will provide a loan to Iceland to enable this restitution and the Dutch Central Bank is to settle the depositors' claims," it said.

The Netherlands announced earlier this week it would guarantee savings of up to 100,000 euros by Icesave's Dutch clients, said to number about 120,000 and to hold some 1.6 billion euros in savings.

The global financial crisis has devastated Iceland's banking sector, forcing the country to nationalise its three biggest lenders this week.

Icesave is the online British subsidiary of Landsbanki, the country's second biggest bank, which was taken over by Icelandic authorities on Tuesday.

The bank has announced that customers can no longer withdraw or deposit money, prompting the British government to threaten legal action to recover money lost.

But the two countries turned to a diplomatic approach on Saturday and both declared that progress was made during "friendly" talks in Reykjavik.

Discussions "related to the current financial crisis, with the objective to reach a mutually satisfactory solution on the issues concerned," a joint statement said.

"Significant progress was made on retail depositors of Icesave with arrangements agreed in principle for an accelerated payout to depositors," it said.

An Icelandic government spokesman later said the British officials had left Reykjavik but talks would continue on the remaining issues.

Some 300,000 private British savers reportedly have over four billion pounds (6.8 billion dollars, 5.0 billion euros) locked in Icesave.

When Icesave clients in Britain could no longer access their accounts on Tuesday, London responded by freezing the assets of Landsbanki using anti-terrorism legislation, which Iceland strongly protested.

British Prime Minister Gordon Brown initially called Iceland's attitude "totally unacceptable" but by Friday had toned down his rhetoric.

"We very much hope that it will be possible to resolve this situation rapidly and on a constructive and cooperative basis," Brown wrote to his Icelandic counterpart Geir Haarde as senior British officials arrived in Reykjavik.

Iceland is reeling from the near wipe-out of the country's banks. In one week, the Nordic nation of 313,000 people has gone from a rich, prosperous country to one that is on the verge of bankruptcy.

Over the past 10 years, the economy has grown an average four percent a year with a peak of 7.7 percent growth rate in 2004.

But on Monday Iceland's parliament adopted emergency laws to save the financial sector and ward off national bankruptcy, allowing the government to take control of all banks and financial bodies, take over assets and merge institutions.

It also called on Russia for help and is set to negotiate with Moscow this week for a loan of four billion euros.

Iceland's biggest bank, Kaupthing, which has been taken over by the government, has led to complaints from Belgium's Prime Minister Yves Leterme.

He has written to his counterpart in Luxembourg, Jean-Claude Juncker, on behalf of Belgian clients of a Kaupthing subsidiary there.

It is "important to provide clear, transparent and up-to-date information on the situation of the bank and the repercussions that will have for its clients," Leterme's letter published by the Belga news agency said.

The Belgians like all the bank's clients are concerned about recovering their savings. "I wish to relay their anxiety," he said.