Nations in talks on Iceland deposits dispute

[January 29, 2010]  LONDON (AP) -- Icelandic, British and Dutch officials will meet in The Hague on Friday to discuss a dispute over compensation for funds lost when Iceland's banking system collapsed.

Officials will "discuss the current situation and exchange information," Icelandic Prime Minister Johanna Sigurdardottir's office said in a statement.

Iceland is seeking a way to avoid a potentially damaging referendum over the $5.7 billion that the tiny island nation owed Britain and the Netherlands for money those countries used to compensate their depositors in Icesave, an internet bank that collapsed with its parent Landsbanki in October 2008.

Iceland's parliament agreed legislation late last year that set terms for repaying the money, but the country's president refused to sign the so-called Icesave bill. His action triggered the national poll, which is scheduled for March 6.

Opinion polls suggest Icelanders will vote against the bill, with opponents angry that Britain and the Netherlands succeeded in imposing tougher terms on repayment.

If the referendum says no to the Icesave bill, the Icelandic parliament will revert to an earlier version of the law which was rejected by the British and Dutch governments because of limits it places on repayment.

That could delay a solution to the dispute, endangering vital funding promised to Iceland by the International Monetary Fund and Nordic countries, and threatening support for its bid to join the European Union.

The country is relying on EU membership and the IMF funds to help it get back on its feet after the credit crisis crippled its overweight banking system, damaging the rest of its economy, in late 2008.

A spokesman for the British Treasury, speaking on customary condition of anonymity, said that Britain continued to expect Iceland "to live up to their obligations."

The statement from Sigurdardottir's office said the talks would be attended by Iceland's Minister of Finance Steingrimur J. Sigfusson, Dutch Finance Minister Wouter Bos and British Financial Services Minister Paul Myners. British Treasury chief Alistair Darling is currently at the World Economic Forum in Davos, Switzerland.

Iceland's delegation also includes members from the country's two main opposition parties.

[Associated Press; By JANE WARDELL]

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