Councils across Lancashire could have to wait "two or three years" before they see cash they have lent to Iceland's stricken banks, a local expert has warned.
Thankom Arun, an international finance expert at the University of Central Lancashire, said he expected it to take that long for financial experts called in to rescue financial institutions, including the country's second-largest bank Landsbanki, to
broker a deal.
It was revealed yesterday Lancashire County Council and district councils in South Ribble, Chorley and Lancaster are waiting for the outcome of the crisis in the nation where they have £23m invested.
Mr Arun said he did not expect the UK government to step in and guarantee the cash invested by the councils as they have with individual depositors – but said they should make some effort to relieve the situation.
He said: "You cannot punish councils because all they have done is followed guidelines and invested in very well thought of investment banks and the risk is without this money there is going to be an impact on front line services.
"What the government must do is come up with a policy statement telling councils that money will be relieved gradually to enable the councils to make a long-term plan to recover from this.
"The reality is that it will take some time for this situation to stabilise and I think we are going to be looking until 2010 or 2011 until it settles down."
Iceland announced it had halted equity trading on its OMX Nordic Exchange until Monday as it grapples with the financial crisis that is threatening to overwhelm the nation.
On Tuesday, the government nationalised two of the country's leading banks, Landsbanki and Glitnir which are both in receivership, and yesterday completed the largest, Kaupthing.
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