Iceland's economic woes looked set to worsen as it headed for a "no" vote in a referendum on terms for repaying "Icesave" debts that have held up vital aid to the crisis-hit North Atlantic island nation.
The finance minister said today a referendum on March 6th was now unavoidable, even though a new and better deal with British and Dutch creditors might not be far off.
"Time has run out," finance minister Steingrimur Sigfusson told parliament.
"Technically, it (the referendum) could be scrapped any time until tomorrow night, but there are no such plans."
Iceland's banks collapsed in late 2008, victims of the global credit crunch and a decade of debt-fuelled expansion across northern Europe.
The economic recovery has been hampered by Iceland's failure to negotiate a revised repayment deal with Britain and the Netherlands on how to refund more than $5 billion (€3.6 billion) they paid to savers who lost their deposits in Icelandic "Icesave" accounts.
The three countries agreed repayment terms last year which were then passed by Iceland's parliament. But the island's president refused to sign the legislation, triggering a referendum on the issue which is due to happen on Saturday.
Iceland had hoped a renegotiated deal would avoid the need to hold a referendum which polls indicate will reject the Icesave bill. Icelanders believe the current deal is too harsh and blame British and Dutch authorities for part of the mess.
Economy minister Gylfi Magnusson said he also blamed the IMF for turning Icelanders against the Icesave bill, by effectively stopping the flow of funds while the Icesave issue is debated.
"It was completely unjustifiable to hold up the IMF programme due to the Icesave debate, these things should have been kept completely separate," he told a news conference.
"People are not just looking at the Icesave bill, how much it costs and what are the alternatives, they are looking at the process in this particular agreement. If they feel the process was unfair or that we were negotiating under duress, then they are never going to be happy with the outcome," he added.
Britain and the Netherlands have offered better terms, but Iceland continues to hold out for more, despite the serious consequences of isolation from capital markets.
The deputy governor of Iceland's central bank, Arnor Sighvatsson, said that even if the referendum rejects the current Icesave deal, a new agreement will be reached some time.
"This is not the end of the world. It merely implies that negotiators have run out of time to finish a deal before the referendum but it does not change the fundamentals in any way," he said.
"We will get there."
Reuters