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Will Britain be forced to shoulder compensation bill for the Icelandic banking collapse?

Despite the fact that the UK government is publicly stating it will continue to pursue the Icelandic authorities for repayment of a multibillion pound loan which was to be used to compensate UK savers, behind the scenes it looks as though the UK authorities are readying themselves to give up on the loan. There is growing concern within Iceland that the £3.4 billion compensation package, which was originally voted through the Icelandic parliament, is unfair and unjust.

It was interesting that only 48 hours ago Gordon Brown suggested that any delays with the compensation package may well scupper Iceland's bid to join the EU, only 24 hours later other UK government ministers have rejected this assumption. It seems almost inevitable that the Icelandic population will vote against the compensation package and the UK government will have to push as hard as possible the change the minds of the Icelandic government in the short term.

However, there is the potential for the Icelandic authorities to suffer some long-term fallout from this particular incident which has already put at risk the political relationship between the UK and Iceland and the Netherlands and Iceland.

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