Iceland's PM tries to defuse row with UK's Brown

Iceland’s prime minister sought to draw a line under the bitter spat with British Prime Minister Gordon Brown tonight by insisting they were now working together to deal with the banking crisis.

Geir Haarde said he was cooperating “amicably” with the UK, and stressed that his country would “honour its obligations”.

However, he again refused to guarantee that British taxpayers hit by the collapse of the Icelandic banking sector would get their money back.

Mr Haarde was speaking after UK Treasury officials arrived in Reykjavik for talks to try to settle the dispute, which involves some £1bn (€1.3bn) of local councils’ cash as well as billions more from small investors.

It also emerged today that the Chelsea Building Society has some £55m (€69.8m) invested in the troubled country, while charities are thought to have more than £120m (€152m) tied up, and two NHS Trusts – Central and North West London NHS Foundation Trust and The Christie NHS Foundation Trust in Manchester – stand to lose some £2m (€2.5m).

Iceland's PM had reacted angrily over the use of anti-terror laws to freeze the Icelandic banks’ assets in the UK yesterday, branding it a “completely unfriendly act”.

But Mr Haarde struck a more positive note tonight, telling a press conference that he had now received a letter from Mr Brown outlining his position.

“We will now be able to start working together to find a solution,” he said. “We will honour our obligations. We may need some support from UK authorities in order to do that in a proper way.”

He said the “strong words” from Mr Brown – who has described Iceland’s behaviour as “totally unacceptable” and threatened legal action to recoup cash - would “never help” the situation.

Today, Mr Brown said he was doing “everything in my power” to get money back for UK investors.

“This is the responsibility of the Icelandic authorities. They have got to take responsibility for this situation,” he told the BBC.

“There are a lot of investigations to be done as to where the money is held at the moment. We have asked the Icelandic authorities to return money that should have been left in Britain.”