Iceland hopeful of reaching a deal with Britain, Netherlands to prevent damaging referendum

Iceland hopeful of deal in deposit dispute

REYKJAVIK, Iceland — Icelandic Prime Minister Johanna Sigurdardottir said Tuesday she hopes to reach a deal in the next couple of days over the controversial payment of $5.7 billion to Britain and the Netherlands for deposits lost when the country’s banks collapsed.

Iceland is holding last-ditch talks with the two countries to try hammer out a new payment plan after criticisms of a previously agreed deal forced it to call a potentially damaging referendum on the issue.

“I think that today and tomorrow the outcome in this matter will be determined and we will see if we have more in hand in this matter,” Sigurdardottir told reporters after a meeting with her Cabinet. “And if we do have something we should be able to evaluate whether there will be a reason for the referendum not to take place.”

Icelanders are widely expected to vote against the so-called Icesave deal if that poll — scheduled for Saturday — goes ahead. That outcome would likely threaten key bailout funding from the International Monetary Fund and Nordic countries, and endanger Iceland’s application to join the European Union.

The Icesave deal outlines the return of funds to Britain and the Netherlands after they compensated their citizens for lost savings when Internet bank Icesave collapsed.

Delegations from all three countries met in London earlier Tuesday. Sigurdardottir said that there were indications that the British and Dutch were prepared to discuss better interest terms for the payment.

Elias Jon Gudjonsson, spokesman for Iceland’s Finance Ministry, told Icelandic media after the talks ended that it is now up to Britain and the Netherlands to advance the discussions. The delegations are trying to work quickly with only a few days left until Saturday’s referendum, he said.

Iceland last week rejected a revised deal that offered a floating interest rate on the debt, plus 2.75 percent, representing a significant cut on the 5.5 percent under the original deal. It could also have taken up a two-year interest holiday worth $600 million.

If a new deal is reached with its creditors, the government would attempt to push a new deal quickly through the Althingi, the Icelandic parliament.

The original deal was narrowly passed by the Althingi last year, but the weekend referendum was triggered when Icelandic President Olafur R. Grimsson refused to sign a bill green-lighting the deal into law in January.

Opponents have objected to the tough initial terms imposed by Britain and the Netherlands for repayment, including the heavy interest rates, rather than the deal itself.

Recent polls clearly suggest a “no,” vote, leaving the plan in limbo and likely extended talks that could delay the IMF funds and EU access.

Ratings agency Moody’s Investors Service underscored that risk last week, saying that a failure to reach a new agreement would “likely to lead to … a weaker economic recovery and potentially, political instability,” it said in a statement.”

Sigurdardottir did not rule out postponing the referendum for a week if the deal appeared to be in the final stages.