It seems the decision by Icelandic voters not to pay billions of euro in compensation to Britain and the Netherlands may end up in the courts.
Voters have said 'no' in a referendum on the plan to pay the compensation following the collapse of one of the country's banks.
Landsbanki, which operated savings accounts in Britain and the Netherlands under the name Icesave, collapsed in 2008.
Final results from five of six constituencies today showed the “no” side taking just under 60% of the votes.
Prime Minister Johanna Sigurdardottir said the results were disappointing but she would try to prevent political and economic chaos resulting from it.
The result complicates Iceland’s recovery from its 2008 economic collapse.
Icelanders overwhelmingly rejected a previous deal in a referendum last year, but the government hoped a new agreement on better terms would win approval.
The government hoped a “yes” vote on an improved offer passed by parliament would finally resolve a dispute that has caused friction among the three countries and complicated Iceland’s recovery from its economic collapse in 2008.
The messy dispute stems from the collapse of Iceland’s banks – and the tiny North Atlantic nation’s overheated economy – in 2008.
British and Dutch savers had deposited more than five billion US dollars in Icesave’s high-interest accounts.
After Icesave collapsed, British and Dutch authorities borrowed money to compensate their citizens, then turned to Iceland for repayment.
The dispute has grown acrimonious, with Britain and The Netherlands threatening to block Iceland’s bid to join the European Union unless it is resolved.
Failure to agree a deal also stalled instalments from a $4.6bn loan from the International Monetary Fund.
Iceland went from economic wunderkind to fiscal basket case almost overnight when the credit crunch took hold.
Iceland’s banks collapsed within a week in October 2008, its krona currency plummeted and protests toppled the government.
The Icesave debt was initially set at $5.3bn, a crippling burden for Iceland’s 320,000 inhabitants. The new deal is expected to cost Iceland just under 50 billion Icelandic kronur (€307m).
The plan would see Iceland start repayments on the debt’s interest in 2016 and finish by 2046, at an interest rate of 3% to The Netherlands and 3.3% to Britain. The recovered assets of Icesave’s parent bank, Landsbanki, are expected to cover the majority of the debt.
The deal was reached in December after long negotiations and approved by Iceland’s parliament in January but vetoed by President Olafur Ragnar Grisson amid strong public opposition.
Sigurdardottir said that with the failure of the second referendum, the compensation issue would now be settled in a European trade court.
Opposition politicians called on the government to hold new elections, but Sigurdardottir said her left-of-centre coalition would not resign.
But she said the result “will make us rethink many issues. We will have to rethink the budget and economic policies”.
With about 90% of the votes counted, the "no'' side had 59.1% of the votes and the "yes'' side 40.9%.
Britain and the Netherlands said they would fight to get their money back.
Dutch finance minister Jan Kees de Jager said the referendum result “is not good for Iceland and also not good for the Netherlands.”
“The time for negotiations has passed,” he said. “Iceland still has the obligation to pay us back. This is now a case for the courts.”