Iceland urges caution in UK over Icesave spat

LONDON (AP) -- Iceland's president urged British leaders on Thursday to be cautious in their public statements about the diplomatic spat regarding his decision to send a controversial loan repayment bill to a national referendum -- warning that their remarks are being closely watched in Iceland.

President Olafur R. Grimsson announced earlier this week that he would not sign into law legislation on the repayment of a $5.7 billion to Britain and the Netherlands that those governments used to compensation investors in a collapsed Icelandic Internet bank.

Grimsson's shock decision to trigger the people's poll, which is tentatively scheduled for Feb. 20, has sparked the country's worst political standoff with Britain since the Cod Wars of the 1970s over fishing rights in the North Atlantic.

Britain has said that Iceland risks becoming an international pariah and has suggested its desire for speedy entry to the European Union will be impeded if the country's 243,000-strong electorate votes "no" to the amended bill. Both Britain and the Netherlands have the ability to veto Iceland's EU bid.

Grimsson said Thursday that British leaders could have a negative or positive impact on the planned referendum.

"I think its important for (Treasury chief) Alistair Darling and (Prime Minister) Gordon Brown to realize that a few minutes after they speak to their home audience in Britain everything they say is being talked about in Icelandic fishing plants and every village and every office," Grimsson told BBC Radio. "If they want a constructive outcome of this dispute, they should be aware every sentence they say will have repercussions on the debate in Iceland."

Grimsson stressed that Iceland will repay both London and the Hague the funds they used to compensate their citizens who had accounts with online bank Icesave, a subsidiary of Icelandic bank Landsbanki that was available only in Britain and the Netherlands.

Next month's referendum on the so-called Icesave bill is a vote on the changed terms of the deal imposed by Britain and the Netherlands, not the deal itself.

If a "no" vote wins the day, earlier legislation will still stand, paving the way for further talks between the three countries to reach a mutually acceptable deal.

Grimsson said his decision would restore "reconciliation and harmony" in Iceland after the trauma of the 2008 banking crisis that angered many ordinary Icelanders who blame a handful of "venture Vikings" for the country's downfall.

But along with potentially jeopardizing a $4.6 billion bailout from the International Monetary Fund and Nordic countries, it has taken Iceland into uncharted waters by pitting the people and the president against the elected government, which has said the Icesave bill is necessary for the country's future economic survival.

Iceland Finance Minister Steingrimur J. Sigfusson acknowledged that the referendum "is a fateful matter for the government," but stopped short of commenting on whether either the government or the president would be forced to resign.