- Associated Press - Sunday, April 10, 2011

REYKJAVIK, Iceland (AP) — Voters in Iceland rejected a government-backed deal to repay Britain and the Netherlands for their citizens’ $5 billion worth of deposits in a failed online bank, referendum results showed Sunday — sending the dispute to an international court and plunging the economically fragile country into new uncertainty.

Final results showed the “no” side had just under 60 percent of the votes and the “yes” side about 40 percent.

The result reflects Icelanders‘ anger at having to pay for the excesses of their bankers and complicates the country’s recovery from economic collapse.

It is the second time voters have defeated a bid to settle the bitter dispute stemming from the collapse of Iceland‘s high-flying banking sector in 2008, and the government said it would be the last.

“We are at the end of the road of a negotiated solution,” Finance Minister Steingrimur Sigfusson said.

He said Iceland now would opt for “Plan B,” with the dispute going to the European Free Trade Association court, which could impose harsher terms on Iceland than those rejected in Saturday’s vote.

Britain and the Netherlands said they would fight to get back the money they spent compensating their citizens who had accounts in the failed bank, Icesave.

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.”

British Treasury minister Danny Alexander said, “We have an obligation to get that money back, and we will continue to pursue that until we do.”

“We have a very, very difficult financial position as a country,” Mr. Alexander told the BBC. “This money, of course, would help.”

Icelandic Prime Minister Johanna Sigurdardottir said the results were disappointing but she would try to prevent political and economic chaos ensuing.

Mr. Sigfusson said the result would have no effect on Iceland‘s existing debt repayments and would not derail its bid for European Union membership.

A tiny North Atlantic nation with a population of just 320,000, Iceland went from economic Wunderkind to financial basket case almost overnight when the credit crunch took hold. Its major banks collapsed within a week in October 2008, its krona currency plummeted, and protests toppled the government.

Some 340,000 British and Dutch savers had deposited more than $5 billion 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.

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