The people of Iceland have overwhelmingly rejected a proposal to pay back billions of euros in debt to Great Britain and the Netherlands in a referendum about the Icesave bail out.

Ninety-eight percent of the voters opposed the deal, which Prime Minister Johanna Sigurdardottir sealed with London and The Hague last year. The parliament in Reykjavik had also agreed to the far-reaching austerity measures.

It is not clear what happens next. Iceland wants to join the European Union and plans to lend billions from the International Monetary Fund.

The IMF has already said it wants Iceland to prove its financial credibility first.

The EU countries will probably decide on 22 March on whether to begin accession talks with Iceland. Behind the scenes, British and Dutch diplomats have indicated that a repayment deal will have to be completed first.