Brussels to loan funds to Iceland in ‘political gesture’

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The European Union is to make a “political gesture” of a nominal loan to Iceland to help the country avoid the collapse of its economy.

Describing the sum as “small,” but not specifying any amount, European Commission spokesman Johannes Laitenberger told reporters in Brussels on Monday (10 November): “This should be seen more as a political gesture, as a complement” to loans from the International Monetary Fund (IMF).

The IMF announced at the end of October to provide the ailing north Atlantic country, which is not a member of the EU, loans worth €1.6 billion. The fund has predicted that Iceland’s economy will contract by as much as 10 percent in 2009.

Norway, also outside the union, has offered Iceland a €500 million loan, atop a €500 million swap facility announced in May at a time when the Icelandic economy was teetering but had yet to topple. Sweden and Denmark have both also agreed to €500 swap facilities.

Poland has offered €157 million ($200m) in a loan to the country, while the tiny Faroe Islands have offered €40 million (300m kroner).

The commission added that the loan would come only once Iceland had reached agreement with “some member states …on bilateral issues related to the deposit guarantee scheme and the protection of foreign depositors.”

In the wake of the crash, depositors with UK and Dutch divisions of Icelandic banks lost millions in savings that the two EU governments are attempting to recoup.

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