UK and Netherlands to sue Iceland over lost deposits
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The UK and Dutch governments are preparing court action against Iceland to recover 4bn euros (£3.5bn) lost when the country's bank system collapsed.
It follows a referendum in Iceland which rejected a repayment plan.
The UK said it was "disappointed" by the "no" vote, while the Dutch finance minister said the time for negotiations was "over".
Iceland's Finance Minister Steingrimur Sigfusson said that resolving the row in court would take at least a year.
But he told the BBC: "It is very important to emphasise that the UK and the Netherlands will begin to get their money back later this year."
He said the failed bank would be able to pay out on about 90% of claims from the UK and Dutch authorities.
The UK and the Netherlands say they are owed the money following the collapse of Icelandic savings bank Icesave. British and Dutch depositors were bailed out by their governments, which are now demanding their money back.
'Worst option'
Iceland held a referendum at the weekend on a repayment plan, but with about 90% of the vote counted, 59.1% were against and 40.9% in favour.
Johanna Sigurdardottir, Iceland's Prime Minister, said the rejection meant "the worst option was chosen" and had split the country in two.
The UK's Chief Secretary to the Treasury, Danny Alexander, called the decision "disappointing" and said the matter would go to an international court.
Speaking on the Andrew Marr programme, he said: "It's obviously disappointing... We tried to get a negotiated settlement.
"We have an obligation to get that money back, and we will continue to pursue that until we do... We have a difficult financial position as a country and this money would help," he said.
Dutch Finance Minister Jan Kees de Jager said he would be consulting Britain about taking further steps against Iceland, but added that the matter would likely end up in court.
"I am very disappointed that the Icesave agreement did not get through. This is not good for Iceland, nor for the Netherlands.
"The time for negotiations is over. Iceland remains obliged to repay. The issue is now for the courts to decide," Mr de Jager said in a statement.
The issue will now be referred to an international court, the European Free Trade Association Surveillance Authority.
Continue reading the main story Analysis The Icelandic people were damned if they did and damned if they didn't. It looks as if they still couldn't stomach the idea of paying off the debts of privately owned banks - even if the revised deal was considerably more generous. The consequences of this referendum vote is that Iceland's years in the financial wilderness could be extended much further. Moody's and other ratings agencies look set to downgrade the country even further, making it prohibitively more expensive to borrow on the open markets. Iceland's bid to join the EU will be paused or even vetoed by Britain and the Netherlands. And the tiny Atlantic economy is facing legal action in the EFTA court which might force it to pay up sooner than planned and at a punitive interest rate. Democracy doesn't pay if you're an Icelander.
Mr Sigfusson told a news conference that the dispute with Britain and the Netherlands would take at least a year to resolve in court.
"My estimate is that the process will take a year, a year and a half at least," he said. However, some analysts believe the legal process would take considerably longer.
He added that the outcome of the vote was clear. "I think it's very hard to interpret this in any other way than the fact that the Icelandic people are not prepared to accept payments or shoulder the burden unless there is a clear legal obligation to do so."
Iceland's Landsbanki bank ran savings accounts in the UK and Netherlands under the name Icesave and investors there lost 4bn euros (£3.5bn; $5.8bn).
When it collapsed in 2008, the British and Dutch governments had to reimburse 400,000 citizens - and Iceland had to decide how to repay that money.
'Such a revulsion'
Iceland's parliament had backed the deal, but President Olafur Ragnar Grimsson refused to sign it, triggering the referendum.
A previous deal, imposing a tougher repayment regime, was rejected in a March 2010 referendum by 93% of voters.
Mr Sigfusson appeared to rule out a third attempt to persuade voters to accept a repayment deal.
"I think we're getting a very clear sign from this referendum, that further negotiations are ruled out. No use in trying that again."
But in his interview with BBC News, he said: "There is not much point in being angry. We are where we are and we have to work from then on. Iceland has made considerable progress out of its difficulties in 2008."
Backers of a "yes" vote had argued the repayment deal was the best way to resolve the issue in terms of cost and risk to Iceland.
The "no" camp said the Icelandic taxpayer was under no legal obligation to pay for a private bank's losses and that the deal would put a heavy burden on the nation.
Longer period, lower interest
Under the terms of the rejected deal, Iceland would have paid the money back with 3.3% interest to the UK, and 3% to the Netherlands, over 30 years between 2016 and 2046.
Under the previous proposal, the money was to be paid back with 5.5% interest between 2016 and 2024.
Prime Minister Johanna Sigurdardottir: "Disappointing numbers"
The actual cost to the state was expected to be much less than the 4bn euros owed, as the government said most of the repayment would come from selling the assets of Landsbanki.
The government has said it did not expect the cost to exceed 50bn kronur (£168m).
Analysts say a resolution of the issue is vital to Iceland's prospects for recovery because it would allow the country to return to the financial markets to fund itself.
Solving the dispute is also seen as key to Iceland's chances of joining the EU.
Iceland's three main banks collapsed within days of each other in October 2008.
The government compensated Icelandic savers, but overseas customers faced losing all of their money.
The issue sparked a diplomatic row between Iceland and the UK, and created uncertainty over Iceland's economic recovery.
Coat of arms of Iceland


Results from Iceland's  referendum on Saturday  show that Icelanders overwhelmingly  voted "no" on a government-approved plan to repay Britain and the Netherlands billions of euros lost in Iceland's 2008 bank crash.

In Sunday's final results almost 60 percent  rejected the deal, with the voting turnout high,  the government reported. This is the second repayment plan rejected by the voters; .

British and Dutch investors lost 3.9 billion euros ($5.6 billion) in , an Icelandic internet bank that failed in .  The two governments reimbursed their citizens and are now seeking repayment from Iceland. Iceland compensated its own citizens for losses but not overseas depositors.

The latest repayment plan took two years to work out between Britain, the Netherlands and Iceland and was passed by a 70 percent majority of the Icelandic parliament. It provided for a lower interest rate and a longer repayment period, conditions much more beneficial to Iceland than the previous plan. The cost would average about  12,000 euros before interest per Icelander. Those against the referendum felt that amount was a heavy burden on Iceland and  the taxpayer was not legally responsible for  a private bank's losses.

In a press conference, Iceland's   said, "I think it's very hard to interpret this in any other way than the fact that the Icelandic people are not prepared to accept payments or shoulder the burden unless there is a clear legal obligation to do so."  He said that Iceland can pay its debts and the country has the reserves to cover future payments. 

But Iceland's  said the referendum results were disappointing and have divided the country. She considers acceptance of the payment plan essential to Iceland's attempts to join the European Union (EU). Under an EU directive, Britain and the Netherlands are owed compensation by Iceland. The International Monetary Fund's 2009  loan to Iceland of $2.1 billion  contained the provision that Iceland repay the British and Dutch governments. Britain and the Netherlands are in a position to  block Iceland's  application for European Union membership. 

The Netherlands and Britain said the opportunity to  negotiate has passed and the dispute will end up before the , the court  for the .

British   said that the British government had fulfilled its obligation to its citizens to compensate them for their losses. "We have an obligation now to get that money back, and we will continue to pursue that until we do. ... We have a difficult financial position as a country and this money would help."

Dutch  said, "Iceland remains obliged to repay. The issue is now for the courts to decide."

The increasingly bitter dispute must be resolved for Iceland to have access to financial markets essential to fund its recovery, experts say, and resolution is essential for  Iceland's attempts to become an EU member.