January 13, 2010 2:00 am

Iceland rushes to find Icesave face-saver

Iceland's government was scrambling to find a face-saving solution to the -Icesave dispute as the clock yesterday ticked towards a politically destabilising -referendum on the Anglo-Dutch debt repayment plan.

Icelandic officials said the government was exploring possibilities for a com-promise that would allow it to avoid a national vote on legislation to reimburse Britain and the Netherlands for €3.9bn lost in the failed Icesave online bank in 2008.

The government and opposition parties are broadly in agreement that it would be best to avoid a referendum because it would threaten Iceland with a fresh round of political turmoil on top of its economic woes.

However, there was no clear indication yesterday that the either UK or Dutch governments was willing to reopen negotiations. Furthermore, there was little sign of a consensus in Iceland over the shape of a potential compromise.

Iceland's finance ministry said the government remained committed to holding a referendum by March 6 after President Olafur Ragnar Grimsson last week refused to sign legislation backing the deal. However, Icelandic officials made it clear that Reykjavik would seize any chance to pre-empt the vote if Britain and the Netherlands were prepared to return to the table.

"We will try to use the next few days to look into all possibilities," said the finance ministry. It added that Reykjavik was open to using an international mediator, with Icelandic media touting figures such as Joschka Fischer, former German foreign minister, as potential candidates.

A referendum would put the government in the uncomfortable position of having to defend the deal it struck with Britain and the Netherlands last year in the face of widespread public criticism that the terms were unfair.

A compromise could also be in the interests of Britain and the Netherlands because rejection of the deal would complicate efforts by the governments to reclaim compensation they paid to UK and Dutch customers who lost money in Icesave.

Two of the three opinion polls taken since the president's decision have indicated that the legislation would be rejected in a referendum - an outcome that political analysts say could force the Icelandic government to step down.

UK Treasury officials acknowledged that London remained in contact with Reykjavik on the issue, while insisting that there was no immediate prospect of a breakthrough.

The Dutch finance ministry said it was not aware of any move by Iceland to open talks again and said the Netherlands expected the referendum to go ahead.

Additional reporting by Jim Pickard in London

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