They’ve had clashes over fishing rights in the past, now Britain and Iceland are fighting over bank deposits. 1.25 billion euros of British deposits are trapped in collapsed Icelandic banks.

British Prime Minister Gordon Brown said the problem is being caused by the Icelandic government. He said “It is totally unacceptable behaviour. We are taking legal action against money that has been moved out of Britain into Iceland. We are trying to freeze the assets of the Icelandic companies here. It is a responsibility of the Icelandic government, but we recognise also that there are issues for local authorities and we are talking with local authorities today to see what we can do to help them.”

A team of British Treasury officials have headed to Iceland to try to work out a solution to the problem. Faced with a collapsing financial sector the Icelandic government this week adopted sweeping powers allowing the state to dictate banking operations.

It is guaranteeing the savings of Icelanders but not of foreign depositors like the British whose savings have been frozen.

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