The UK government has gained extra leverage in its efforts to ensure that British savers with deposit accounts in crisis-hit Icelandic banks receive all their money back.

The European Commission confirmed yesterday that Iceland’s Prime Minister Geir Haarde has formally written to Commission President, Jose Manuel Barroso, asking for macro-financial assistance to help the country’s economy.

The Commission has indicated that it is ready to grant the request, but first it is insisting that all bilateral disputes over the status of funds held by foreigners be settled.

Commenting on the Icelandic request, the Commission spokesman, Johannes Laitenberger, said: “This can only be done after several member states and Iceland reach an agreement on bilateral issues related to deposit guarantee schemes and the protection of foreign depositors.”

The unambiguous condition will strengthen the British government’s hand as it presses Iceland to honour deposit guarantee schemes so that Britons do not lose their savings. It will also provide a lifeline to savers in other countries such as the Netherlands, Luxembourg and Belgium who also placed their funds in Iceland’s banking system.

The loan that will be offered to Iceland must first be approved by all 27 EU countries. The Commission insisted that the amount would be “small” and “should be seen as a political gesture” that would complement assistance from the International Monetary Fund and other sources.

Iceland has already negotiated a two billion dollar loan from the IMF and is looking for a further four billion dollars from other lenders, including Russia.

Help from the Brussels macro-financial assistance fund is available to non-EU countries that are democratic, and have close political, economic and geographical links with the EU. In the past, it has been largely used by countries such as Armenia, Tajikistan, Ukraine and the Balkans.

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