Page last updated at 20:49 GMT, Thursday, 4 March 2010

Iceland referendum 'to go ahead' as talks fail

Icesave's parent bank, Landsbanki, collapsed in 2008

Iceland has all but given up on agreeing a new deal with the UK and the Netherlands to repay more than 3.8bn euros ($5.2bn; £3.4bn) of debt.

It had hoped to avoid a referendum on the issue by agreeing a repayment plan before the weekend, but the vote is likely to go ahead on Saturday.

Opinion polls suggest Icelandic voters will reject a plan agreed last year.

A no vote could jeopardise billions of dollars of loans from the International Monetary Fund and other countries.

"The referendum is going to go ahead," said Iceland's Finance Minister Steingrimur Sigfusson.

"We have been trying to resolve the matter in another fashion but time has run out."

However, he did say that the referendum could, technically, be cancelled at any point up to Friday night.

High stakes

The UK and the Netherlands want Iceland to repay money that they paid out in compensation to customers of the Icesave online bank, which collapsed in October 2008.

Gavin Hewitt
I sensed that a majority of Icelanders still supported repaying the UK, but only if the terms were fair
Gavin Hewitt
BBC Europe editor

The three countries have been negotiating a repayments package for months.

The country's parliament voted for a referendum on the original 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 stakes are high, because Iceland needs international loans to help it rebuild its economy, which was hit particularly hard during the global downturn.

Some of these loans are conditional on Iceland repaying its international debts.

The dispute has also overshadowed Iceland's application to join the European Union, which was submitted in July last year.

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