[1]

The Icelandic government is urging the  governments of the Nordic countries to announce whether they are willing to grant Iceland loans despite the Icelandic president’s decision to veto compensation payments to the UK and Dutch governments.

Iceland is to hold a referendum by March 6 at the latest on a deal to repay the Netherlands and Britain more than $5 billion which the two countries paid out to compensate savers when Iceland's banks collapsed in October 2008. The referendum decision was taken as a result of mass public protest about the agreed compensation plan.

But there was little sign of comfort for Iceland as the government of Sweden is against allowing further loans to Iceland. Denmark and Finland have yet to show their hands with only Norway seemingly in favour of more lending.

The Nordic countries are part of the International Monetary Fund’s bailout package for Iceland. The IMF was supposed to review the economic stabilization program for Iceland shortly, but it will now be postponed because of how matters have developed.

Meanwhle the Prime Minister of Iceland Jóhanna Sigurdardóttir claims she is optimistic negotiations on Icesave with British and Dutch authorities can be resumed in a bid to supercede the upcoming referendum.  But the Dutch Finance Minister Wouter Bos said he has not received a formal request from Iceland to renegotiate their agreement. In a letter to the Dutch parliament, Bos said he understood the difficult situation in Iceland but the Netherlands must await a national referendum there on a law to repay Icesave-related debts.

In Iceland itself, the government seems conscious of the potential problems of a negative outcome to the referendum. Iceland’s Finance Minister Steingrimur Sigfusson warned the issue was too complex to be put to popular vote.  “It is unique that such a complex question, which stirs up conflict with other countries and has to do with complicated financial issues,” he said.

Meanwhile Standard & Poor's has warned that Iceland’s credit risk may rise “considerably” as a result of recent events  “The risk is there that the program will fall apart and with that, the downside risks would increase very considerably,” said Moritz Kraemer, S&P’s managing director for Europe, the Middle East and Africa adding that he saw a collapse of the government as entirely possible.