President holding up approval of key deal

Reykjavik : Iceland's president is holding up approval of a 3.8 billion-euro deal to reimburse Britain and the Netherlands for money lost in a failed Icelandic bank, adding another twist to a saga that has complicated the country's economic recovery.

The Icelandic parliament backed the repayment plan in a tight vote on Wednesday after months of acrimonious debate, but President Ólafur Ragnar Grimsson has refused to sign the legislation.

The delay has cast fresh doubt on a deal that is considered crucial to Iceland's hopes of joining the European Union and to keeping its $10 billion (seven billion-euros) rescue programme on track.

Grimsson was due to hold a meeting yesterday with opponents of the deal and receive a petition signed by more than 10 per cent of the country's 320,000-strong population calling for him to reject it.

Iceland's government has been struggling since June to win approval for the pact to reimburse £2.3 billion to the UK and 1.2 billion euros to the Netherlands to reimburse the governments for compensation paid to British and Dutch savers who lost money in Icesave, an online arm of Reykjavik-based Landsbanki.

Many Icelanders are furious that they are being asked to foot the bill for the mistakes of their country's bankers and regulators and say the hefty repayments, amounting to 12,000 euros per citizen and nearly half of gross domestic product, will undermine recovery.

Rubber stamp process

Presidential approval is usually a rubber stamp process in Iceland's parliamentary system. But Grimsson said he needed time to carefully consider the legislation given the breadth of public opposition. Only once since the island nation gained independence in 1944 has the president vetoed a bill.

If Grimsson refuses to sign, the government would face a choice of either dropping the bill or putting it to a national referendum.

Johanna Siguroardottir, Iceland's prime minister, has staked her credibility on pushing through the Icesave deal and analysts doubt the ruling left-of-centre coalition could survive its collapse.

Resolution of the Icesave dispute is a condition of loans to Iceland from the International Monetary Fund and other lenders.

— Financial Times