Icelandic authorities have agreed to reimburse Britain and the Netherlands for compensation they have paid out to British and Dutch depositors in Icesave accounts of the failed Landsbanki bank, the governments said in a joint statement on Saturday.
The signed agreements with the Iceland Compensation Scheme will see payments made over 15 years, with an initial 7-year "grace period". A UK Treasury spokesman said the agreement was "a positive step forward for relations between our countries".
Diplomatic relations between Britain and Iceland became strained last October when the British government used anti-terror legislation to seize Icelandic assets. About 300,000 British savers were affected by the collapse of Landsbanki.
Iceland responded by threatening to sue the British government. "Today's announcement is a positive step forward for relations between our countries," the Treasury spokesman said in a statement. "It will ensure the taxpayers interests are protected and that the Icelandic economy can continue in its recovery after very difficult times." The Treasury said it proposes to lift the asset freezing order from June 15. Under the deal, the 2.3 billion pounds paid out by the British government will be treated as a loan to the scheme.