The Dutch government has reacted angrily to a decision by Iceland's president not to sign a bill enabling repayment of lost deposits to Dutch and British savings account holders. "We're extremely disappointed," Dutch Finance Minister Wouter Bos told the press. He added that postponing a solution for the lost deposits would be unacceptable, and has demanded an explanation from the Reykjavik government.

The aim of the deal was to repay 3.8 billion euros to the Dutch and British governments, which had helped depositors who lost their money when the Icelandic banking system collapsed in October 2008. Many Dutch savers had been lured by banks in the mid-Atlantic country offering above-average interest rates on an internet-based savings account. The Icesave internet bank was run by Icelands's ill-fated Landsbanki.

Back to square one
The Netherlands and the UK appear to be back to square one with president Olafur Grimsson's refusal to back the deal agreed with the two countries in August 2009. Following protests by a quarter of the Icelandic population, the president decided to veto the accord, which was all but signed, sealed and delivered after arduous negotions with The Hague and London.

Mr Grimsson announced he would put the accord to a referendum as required by the constitution, saying that the whole nation should be involved if the solution was to be successful. Prime Minister Johanna Sigurdardottir responded that the president's move may be unconstitutional.

Clouds on Iceland's horizon
Dutch Finance Minister Wouter Bos would not be drawn into speculation on measures against Iceland. "But this can't go on forever. We want our money back. We negotiated reasonably."

Iceland wants to join the European Union, but the country's refusal to honour the repayment accord could lead Britain and the Netherlands to veto Reykjavik's bid. Given the popular feeling in Iceland about the way the country has been treated, however, the question might be asked whether the Icelanders still want to become part of the EU.

Another problem looming for Iceland is the IMF loan the country was granted to help solve the financial crisis. The IMF lent Iceland billions of dollars - on condition that the Icesave dispute with the UK and the Netherlands would be solved. The IMF has not yet responded to the latest developments.

Icelandic protest over economic crisis (2009, ANP Photo)