Iceland’s president is holding up approval of a €3.8bn deal to reimburse Britain and the Netherlands for money lost in a failed Icelandic bank, adding another twist to a saga that has complicated the country’s economic recovery.

The Icelandic parliament backed the repayment plan in a tight vote on Wednesday after months of acrimonious debate, but Ólafur Ragnar Grímsson, president, has refused to sign the legislation.

The delay has cast fresh doubt on a deal that is considered crucial to Iceland’s hopes of joining the European Union and to keeping its $10bn (€7bn, £6.2bn) rescue programme on track.

Mr Grímsson is due to hold a meeting on Saturday with opponents of the deal and receive a petition signed by more than 10 per cent of the country’s 320,000-strong population calling for him to reject it.

Iceland’s government has been struggling since June to win approval for the pact to reimburse £2.3bn to the UK and €1.2bn to the Netherlands to reimburse the governments for compensation paid to British and Dutch savers who lost money in Icesave, an online arm of Reykjavik-based Landsbanki.

Many Icelanders are furious that they are being asked to foot the bill for the mistakes of their country’s bankers and regulators and say the hefty repayments, amounting to €12,000 per citizen and nearly half of gross domestic product, will undermine recovery.

Presidential approval is usually a rubber stamp process in Iceland’s parliamentary system. But Mr Grímsson said he needed time to carefully consider the legislation given the breadth of public opposition. Only once since the island nation gained independence in 1944 has the president vetoed a bill.

If Mr Grímsson refuses to sign, the government would face a choice of either dropping the bill or putting it to a national referendum.

Jóhanna Sigurdardóttir, Iceland’s prime minister, has staked her credibility on pushing through the Icesave deal and analysts doubt the ruling left-of-centre coalition could survive its collapse.

Resolution of the Icesave dispute is a condition of emergency loans to Iceland from the International Monetary Fund and other lenders. The issue has also cast a shadow over the country’s application to join the EU.

The Reykjavik parliament first approved the Icesave deal last August but Britain and the Netherlands balked at some of the conditions set by lawmakers – leading to the revised compromise legislation passed on Wednesday.

The government had hailed the 33-30 vote as an important breakthrough in efforts to rebuild the economy and normalise international relations after the collapse of Iceland’s banking sector in 2008. Britain and the Netherlands, whose relations with Iceland have been poisoned by the dispute, welcomed the vote.

Standard & Poor’s, the credit rating agency, lifted its outlook on Iceland from negative to stable after the vote, saying the deal was crucial to it gaining further international support.

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