Icelanders to vote on deal to end row with Britain

Icelandic president Olafur Grimsson has said he will put to a public vote a new deal aimed at solving a dispute with the UK and the Netherlands over a £3 billion repayment.

Mr Grimsson confirmed he would not personally ratify a plan to repay funds invested by British and Dutch citizens in internet bank Icesave that were lost when it collapsed in 2008.

About 38,000 Icelanders - 12 per cent of the population - had signed a petition calling on Mr Grimsson to authorise a referendum. A package with more onerous repayment terms was rejected by the public last year.

Prime minister Johanna Sigurdardottir said she was disappointed and "had expected the president to ratify this".

Icelandic politiicans approved the deal in the parliament, the Althingi, last week.

"We will now go ahead and plan for the referendum," Ms Sigurdardottir said, though it is not yet known when the vote will take place.

Icesave, an online subsidiary of Landsbanki bank, collapsed along with its parent and Iceland's other major banks in October 2008, leaving 340,000 British and Dutch citizens out of pocket. Both Britain and the Netherlands reimbursed their citizens' deposits and have since been seeking repayment from Iceland.

The UK is owed about 2.3bn in compensation and The Netherlands €1.3bn (1.09bn).

Under the new deal, Iceland would begin repayments in 2016 and finish by 2046, at an interest rate of 3 per cent to the Dutch and 3.3 per cent to Britain.

Mr Grimsson said he believed the new proposal was more favourable than the deal rejected last year.

A spokesman last night said the Treasury was seeking further details.

Iceland's failure to settle the dispute has delayed payments from a $4.6bn (2.8bn) loan from the International Monetary Fund. Some legislators believe Britain and the Netherlands could block Iceland's application to join the European Union until an Icesave deal becomes law.