Iceland explores Icesave options but expects vote

REYKJAVIK (Reuters) - Iceland is making a last-ditch effort with Britain and the Netherlands to plead for new terms for repaying more than $5 billion in loans in the hope the island can avoid a divisive referendum on the issue.

Iceland’s president refused last week to sign a bill setting out the terms of repayment, forcing the government to call a public vote on the issue and threatening economic aid for the cash-strapped nation.

However, the government wants to avoid a vote on the issue -- which has deeply divided Icelanders -- by renegotiating the terms with Britain and the Netherlands.

Iceland is holding “frantic talks” with ministers in the Nordics, Britain, the Netherlands and the European Union on the matter, Einar Haraldsson, spokesman for Prime Minister Johanna Sigurdardottir said.

A spokesman for Britain’s finance ministry said Britain was continuing to talk to the Icelandic government about resolving the situation. “We expect Iceland to live up to its obligations,” he said.

The Dutch government could not immediately be reached for comment.

Haraldsson said Iceland’s prime minister was convinced the country must find a quick solution for repaying Britain and the Netherlands money they gave to savers to cover deposits lost when Iceland’s banks collapsed late in 2008.

But he said that Sigurdardottir was not optimistic that the country will be able to avoid a referendum.

“So, she is not giving any great hopes for this change of events, but at the same time it is worth to try and make a last effort to see if we can get something going,” Haraldsson said.

Parliament has approved plans for a referendum no later than March 6.

Additional reporting by David Milliken in London