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UPDATE 1-Iceland says reassured on EU bid despite Icesave

Published 01/09/2010, 11:50 AM
Updated 01/09/2010, 11:51 AM

* Iceland says Spain sees no Icesave effect on EU bid

* Follows conflicting comments on Icesave's impact

* Latest poll shows majority in Iceland oppose Icesave bill (Adds detail, background, poll results)

REYKJAVIK, Jan 9 (Reuters) - Iceland said on Saturday it received reassurance from the European Union presidency that the impasse over Icelandic debts to Britain and the Netherlands would not affect Reykjavik's application to join the bloc.

Iceland plans to hold a referendum no later than March 6 on terms for paying back the two countries more than $5 billion for money lost in high-interest Icesave bank accounts during a financial meltdown in 2008. Britain and the Netherlands compensated savers in full and want their money back.

The so-called Icesave bill is deeply unpopular with Icelandic voters, who believe the terms will be financially crippling as the island tries to emerge from a severe recession.

Many residents also believe the two countries are using their powers as members of both the EU and the International Monetary Fund to bully Reykjavik into accepting an unfair deal.

Spain's foreign minister, Miguel Angel Moratinos, said on Friday that if Icelandic voters rejected the Icesave bill, it could slow Reykjavik's membership bid.

That statement was at odds with comments from Icelandic Foreign Minister Ossur Skarphedinsson, who had said Britain had told Iceland that the Icesave issue would not be a factor in the membership application.

The Icelandic government said Skarphedinsson and Moratinos discussed the situation on Saturday. The statement did not indicate whether the discussion took place over the telephone or in person.

"In their conversation, Mr. Moratinos stated that the Spanish EU Presidency viewed the Icesave issue and Iceland´s EU application as separate issues, and that the new situtation that has arisen in Iceland would not have any impact on EU´s treatment of the application," the statement said.

POLITICAL TURMOIL

Reaching agreement with the two EU countries is vital for the flow of aid to Iceland.

Parliament had passed an amended bill designed to do just that when Icelandic President Olafur Grimsson unexpectedly refused to sign the measure this week, sparking political turmoil and prompting one rating agency to downgrade the island's credit rating to "junk" status.

Grimmson cited a wave of popular anger over the bill. Under the constitution, his refusal forced Iceland to hold a referendum on the bill.

A poll published by Frettabladid daily showed 62 percent of respondents intended to vote against the Icesave bill in the referendum, while 38 percent wanted the law to go ahead as approved by parliament.

Since Grimsson's rejection, one other poll has shown voters against the Icesave bill and another has showed them in favour.

If voters reject the bill, the law reverts to an earlier version passed in August. Britain and the Netherlands rejected that version because repayments were not guaranteed after 2024.

The government, which wants to hold the referendum as soon as possible to avoid further economic fallout from the Icesave affair, had originally intended to hold a vote on Feb. 20. The final date will depend on how quickly ballots can be prepared and the electoral register updated.

Finland, Norway and Denmark all restated on Friday that a condition for their loans is that Iceland meets its international obligations. (Reporting by Omar Valdimarsson in Reykjavik via Stockholm newsroom; Writing by Adam Cox; Editing by Dominic Evans)

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