Page last updated at 06:29 GMT, Friday, 26 February 2010

Iceland repayment talks collapse

Icesave's parent bank, Landsbanki, collapsed in 2008

Talks on how Iceland will repay more than 3.8bn euros (£3.3bn) of debt it owes to the UK and the Netherlands have broken down without agreement.

The collapse of the Iceland-based Icesave online bank in October 2008 hit savers in both countries.

The UK and Dutch governments are seeking repayments from Iceland after they compensated savers themselves.

However, the three governments have been unable to agree on revised payment terms after a week of negotiations.

"We had hoped to be able to reach a consensual resolution of this issue on improved terms, but this has not yet been possible," said Iceland's finance minister Steingrimur Sigfusson.

In a statement, the UK and Dutch governments said they were "very disappointed that despite all the efforts over the past year and a half, Iceland is still unable to accept our best offer on the Icesave loan".

It added: "We have consistently supported Iceland's economic recovery and our latest proposal built upon this, offering the Icelandic government the same interest rate as their current loan from the Nordic countries and, in addition, an offer to waive interest for the first two years amounting to 450m euros.

"This money is still outstanding to UK and Dutch taxpayers and we remain committed to reaching a final agreement with Iceland in due course."

Stricken economy

Iceland plans to hold a referendum on the Icesave repayment on 6 March, but the government is hopeful it can reach a different deal ahead of that.

Opinion polls suggest that a majority of Icelandic voters would reject the repayment plan.

The dispute has delayed International Monetary Fund help for Iceland, which Reykjavik needs to shore up its stricken economy.

The country's parliament voted for a referendum on the Icesave bill after President Olaf Ragnar Grimsson vetoed the repayment to the UK and the Netherlands.

Opponents say the repayment plan forces Icelandic taxpayers to pay for bankers' mistakes.

The dispute has also overshadowed Iceland's application to join the EU, which was submitted in July.

Iceland's economic crisis persuaded many of its politicians that it would be better off inside the 27-nation bloc.

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