Page last updated at 15:41 GMT, Thursday, 4 February 2010

Iceland warns EU over Icesave row

Iceland PM Johanna Sigurdardottir
Iceland's PM might negotiate a different deal with the UK and Dutch

Iceland has urged EU leaders not to link the Icesave bank dispute to IMF aid for Iceland's battered economy.

Iceland's PM Johanna Sigurdardottir delivered the message to European Commission chief Jose Manuel Barroso in Brussels, the PM's office said.

The collapse of the Icesave online bank in October 2008 hit thousands of savers in the UK and the Netherlands.

The UK and Dutch governments, which compensated savers, want Iceland to repay 3.8bn euros (£3.3bn; $5.4bn).

No repayment deal yet

Ms Sigurdardottir "underlined potential unfortunate and damaging effects of any link made by [EU] member states between the Icesave issue and the second review of Iceland's economic programme with the IMF [International Monetary Fund]," the Icelandic statement said.

"She explained that many Icelanders believed that they were the victims of imperfect EU legislation and that many believed the burden to be unfairly distributed between the three countries involved."

Icesave's parent bank, Landsbanki, collapsed in 2008

Iceland plans to hold a referendum on the Icesave repayment on 6 March, but the government may reach a different deal.

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

The dispute has delayed IMF 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.

The membership bid was discussed at the meeting in Brussels on Thursday.

Ms Sigurdardottir "emphasised that the issue should be processed in line with normal procedures", her office said.

"It is extremely important to explain to key players in the EU the situation in which Icelanders find themselves and to explore all possible avenues for solutions, and of course everything was on the table," she said.

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