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Iceland rejects debt deal to repay UK, Dutch

REYKJAVIK, Iceland (AP) — Voters in Iceland have rejected a government-approved deal to repay Britain and the Netherlands $5 billion for their citizens' deposits in the failed online bank Icesave, referendum results showed Sunday.

The result complicates Iceland's recovery from its 2008 economic collapse.

With about 90 percent of the votes counted, the "no" side had 59.1 percent of the votes and the "yes" side 40.9 percent.

Prime Minister Johanna Sigurdardottir said the results were disappointing but she would try to prevent political and economic chaos ensuing.

A tiny North Atlantic nation with a population of just 320,000, Iceland went from economic wunderkind to financial basket case almost overnight when the credit crunch took hold. Its major banks collapsed within a week in October 2008, its krona currency plummeted and protests toppled the government.

British and Dutch savers had deposited more than $5 billion in Icesave's high-interest accounts. After Icesave collapsed, British and Dutch authorities borrowed money to compensate their citizens, then turned to Iceland for repayment.

The dispute has grown acrimonious, with Britain and The Netherlands threatening to block Iceland's bid to join the European Union unless it is resolved.

Failure to agree a deal also stalled installments from a $4.6 billion loan from the International Monetary Fund.

Icelanders overwhelmingly rejected a previous deal in a referendum last year, but the government hoped a new agreement on better terms would win approval.

Sigurdardottir said that with the failure of this second referendum, the compensation issue would now be settled in a European trade court.

Opposition politicians called on the government to hold new elections, but Sigurdardottir said her left-of-center coalition would not resign.

But she said the result "will make us rethink many issues. We will have to rethink the budget and economic policies."


Jill Lawless in London contributed to this report.

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