Cash-strapped Iceland is pleading with its Nordic neighbours to keep vital credit flowing despite an impasse over a law seen as key to restoring international confidence in its economy.
Nordic officials have said the next tranche of a 1.8 billion-euro loan may be delayed after Iceland's president refused to sign an unpopular bill on repaying Britain and the Netherlands more than $US5 billion lost by their savers when Icelandic banks collapsed in 2008.
"I stress that if the Nordic countries were not to stand by us,
it would be a terrible blow for us and it would be out of harmony
of what their leaders have said and with our long-standing
relations," Foreign Minister Ossur Skarphedinsson told Reuters in a
telephone interview.
"I mean, these are our kinsfolk."
Opinion polls suggest a majority of the 320,000 Icelanders oppose the so-called Icesave bill, which enshrines an unlimited state guarantee that critics say could lumber the small north Atlantic island's taxpayers with crippling debts indefinitely.
Parliament meets on Friday to set a date for a referendum on the bill. The daily Morgunbladid said the vote, which the government first proposed holding on February 20, might slip to the first Saturday in March to allow time to update the electoral register.
Skarphedinsson said he had received assurances from British Foreign Secretary David Miliband that the standoff over the Icesave bill would not affect Iceland's candidacy to join the European Union.
"I have spoken to Foreign Secretary Miliband and I have his permission to state officially that this will not affect the EU application," the minister said.
Both Britain and the Netherlands have a veto over new EU memberships.
British Treasury Minister Paul Myners stressed that Iceland needed to honour its obligations.
"This should happen in a way that supports Iceland's economic recovery, rather than hampers it," he said, adding that the terms of the agreement capped payments in relation to gross domestic product.
Iceland's government has said it will honour its international obligations.
Finance minister tour
In a bid to rally support from Nordic lenders, Finance Minister
Steingrimur Sigfusson spoke by telephone with his Swedish
counterpart, Anders Borg, and will meet Norway's Sigbjoern Johnsen
on Friday before flying to Copenhagen to meet with his Danish
counterpart, a finance ministry spokesman said.
"He is of course telling them what the situation is and, of course,
getting their feedback and, of course, (trying to) convince them to
support the plan ... the loans," spokesman Elias Jon Gudjonsson
said.
Reykjavik's plans to stabilise the economy and regain access to foreign capital took a huge blow when President Olafur Grimsson refused on Tuesday to sign into law a bill revising the terms for repaying Britain and the Netherlands for compensation they have already paid out to Icesave account holders.
The cost of insuring Icelandic debt against default or restructuring rose further on Thursday, with five-year credit default swaps reaching 494.9 basis points from 475.6 bps at Wednesday's US close, according to CMA DataVision. Opposition leaders who initially demanded a referendum were quoted in Icelandic newspapers as expressing misgivings about the idea and suggesting it might not be too late for fresh negotiations with London and Amsterdam.
The leader of the main opposition Independence Party, Bjarni Benediktsson, told Frettabladid newspaper: "My worry is that such a journey whereby we would get into a bitter fight is not the best way to reconcile the nation."
Progressive Party leader Sigmundur David Gunnlaugsson told Frettabladid that there was still the option of repealing the legislation if a bipartisan solution could be found before a referendum is held.
The International Monetary Fund has said its $US10 billion rescue loan package for Iceland is not conditional on an Icesave settlement, but it is dependent on the Nordic countries' contribution.
Iceland has already had the first tranche of money from the IMF and in December it received 300 million euros ($NZ586 million) from Nordic neighbours out of the promised 1.8 billion.
