Iceland banksrepay Scottish councils bulk of £47m debt Iceland's banks have repaid the lion's share of the millions of pounds owed to Scotland's council tax payers. A band of Scottish local authorities had invested almost £47 million in Icelandic banks to benefit from high interest rates on offer. But it was feared the public cash was lost when the island nation's banking system collapsed four years ago. Now, however, the vast majority of the outstanding debt has been repaid - and it is claimed that the ordinary Icelanders should get all the credit. Iceland's economy is set to grow by 2.7 per cent this year, compared with an average contraction of 0.3 per cent in the eurozone. The country's crown currency was devalued, making expensive goods much cheaper. And unemployment has fallen to just 4.5 per cent, half the level it was at the height of the banking crisis. "They have pulled themselves up by their bootstraps," said Cameron Buchanan, a Scot who acts as Iceland's honorary consul in Edinburgh. He added: "The recovery is really remarkable. The banking crisis made them more and more determined to pay everything back. They were genuinely horrified when the British government asked for them to be treated like a terrorist state. Fishing is very buoyant, protected by a 200-mile exclusion zone which they guard quite vigorously. And they are not pushing as hard as they used to to get into the eurozone - for obvious reasons. For years, a small band of Scots councils pumped public funds into Icelandic banks, attracted by high rates of interest available on short-term loans. Eight councils kept investing, despite warning bells ringing when the banks" credit rating was being downgraded by international agencies. One of the country's smallest councils, Scottish Borders, entrusted as much as £172m of public cash to Icelandic banks. However, the collapse of Iceland's main banks in October 2008 effectively froze almost £47m belonging to council tax payers in Scotland. Thanks to the hard work of Icelanders, bank assets have retained much of their value, allowing liquidators for some banks to promise that 100 per cent of the debts will be paid. A campaign by local authority umbrella group Cosla in Scotland and the Local Government Association resulted in councils receiving "preferred creditor" status, meaning they were at the head of the queue when repayments were being made. Earlier this year, £26m was still outstanding, but a rapid repayment scheme has seen that figure halved. One council - North Ayrshire - got a £10m payment in March this year. South Lanarkshire Council has recovered half of the £7.5m it had deposited with two banks, Landsbanki and Heritable. A spokeswoman for the ­council said: "The winding up of the banks is ongoing and the council has received payment to date of £1.9m from Heritable Bank, and £2.4m from Landsbanki. The council's accounts have assumed recovery of 100 per cent of the funds from Landsbanki and 88 per cent of the deposit from Heritable. However, work continues to secure the maximum recovery of funds from both banks.