REYKJAVIK, Jan 6 (Reuters) - Iceland said on Wednesday its parliament would reconvene on Friday, earlier than previously planned, after the president rejected an unpopular bill to repay Britain and the Netherlands more than $5 billion.
Bankruptcy
The assembly brought forward its meeting to Jan 8. from Jan. 26 after President Olafur Grimsson refused to sign the "Icesave" bill into law on Tuesday, threatening vital economic aid and casting doubt on Iceland's bid to join the European Union.
Britain and the Netherlands compensated savers to the tune of more than $5 billion they lost in high interest Icesave accounts when Iceland's banks collapsed under the pressure of the global credit crunch.
The decision to reject the bill forced a national referendum which would be held within the next 4 to 8 weeks, an Icelandic official said on Tuesday, but the outcome is uncertain, with a recent poll showing almost 70 percent of voters oppose the bill.
Only once in the republic's 65-year history has a president, whose post is largely symbolic, refused to sign a bill into law. The constitution says the issue must then be put to the public.
Nearly a quarter of Icelandic voters, angry at the prospect of paying debts they feel are onerous and unfair, had petitioned him to reject the bill, and a poll on Wednesday showed that more than half of Icelanders supported the president's decision.
Britain warned Icelanders that if they rejected the bill, the north Atlantic island with a population of 320,000 would face financial isolation.
(Editing by Elizabeth Fullerton)
Ólafur Ragnar GrímssonÓlafur Ragnar Grímsson, President of Iceland, refused to sign a bill to pay US$5 billion (£3.1 billion) to Holland and the UK. Savers in those countries lost out when Icesave's parent bank Landsbanki collapsed and was nationalised alongside Glitnir and Kaupthing. 

The governments of those nations paid out the money individuals had lost and the bill is designed to compensate them. However, the bill is unpopular with the public as 70% of them are said to oppose the measure, which critics have claimed will slow recovery for the Icelandic economy. A petition was given to the President demanding he refuse to sign the bill.

The constitution states that there must now be a public referendum on the issue. The UK has threatened the island nation's 320,000 inhabitants with economic isolation and has requested intervention from the European Union, which is currently considering an application from Iceland for membership. The national assembly has brought forward a planned meeting from the 26th to Friday.

Minister for Foreign Affairs Össur Skarphéðinsson met with every foreign ambassador in Iceland yesterday to discuss the matter. He also met with Mark Flanagan of the International Monetary Fund (IMF), which currently has a deal to loan funds to Iceland. Flanagan later said that so long as the IMF scheme was funded repayment of the Icesave money did not affect this.