Iceland President urges referendum on bank compensation (1st Lead)

Jan 5, 2010, 12:02 GMT

Reykjavik - Icelandic President Olafur Ragnar Grimsson on Tuesday called for a referendum on a controversial plan to compensate mainly foreign savers in a failed Icelandic bank.

The president told a news conference that he would not sign the compensation bill that was narrowly approved by parliament on December 30.

In his remarks the president cited a petition 'signed by a quarter of the electorate' that also called for a referendum on the plan, and said that as head of state he had to ensure the people of Iceland could exercise their right to determine the validity of the law.'

More than 61,000 of the North Atlantic nation's 320,000 inhabitants have signed a petition against the Icesave compensation plan. Grimsson met with organizers of the petition over the weekend.

An initial deal on Icesave reached in August had to be revised as the British and Dutch governments opposed amendments to the bill.

Under the terms, Iceland is to repay 5.4 billion dollars in compensation to Britain and the Netherlands after the failure of the Icesave online bank that was part of Landsbanki, one of three main Icelandic banks that collapsed in the autumn of 2008.

Fulfilling the Icesave compensation plan has been seen as a prerequisite for Iceland to move ahead with its efforts to join the European Union.

The collapse of Iceland's banks plunged the country into recession, and the government was forced to seek emergency loans from the International Monetary Fund and its Nordic neighbours as well as Poland.