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Deadlock as Iceland votes against repaying UK and Holland

Britain is “prepared to be flexible” to reach a deal with Iceland over the £2.3bn debts owed from the collapse of the Icesave online savings bank, the Chancellor said yesterday.

But there is still no clear way out of the deadlock, as negotiators go back to the drawing board in the wake of Icelanders' overwhelming “no” in last weekend's referendum on the issue.

“The fundamental point for us is that we get our money back, but in terms of the terms and conditions we are prepared to be flexible, because it's not in our interest to have Iceland excluded,” Chancellor Alistair Darling said.

“We want Iceland to be part of mainstream Europe, and this is just part of that process.”

Under the rejected deal, Iceland was to pay the Dutch and British governments a total of £3.5bn by 2024, at an interest rate of around 5.5%, in repayment for the cost of reimbursing savers when Icesave parent Landsbanki collapsed in 2008.

Some 62.5% of the electorate voted in the referendum and 93% of them voted “no”. The dispute is also complicating talks about Iceland joining the EU.