Iceland seeks $4 billion more in aid

HELSINKI (Reuters) - Crisis-hit Iceland on Monday said it needed another $4 billion in loans on top of the $2 billion it wants from the International Monetary Fund, and its Nordic cousins said they would see how they could help.

Iceland fell into crisis when its top three banks folded in the face of liquidity problems and high debts, and its currency crumbled. It expects a drop of 10 percent in economic output next year, rising unemployment and worsening public finances.

Prime Minister Geir Haarde, in Helsinki for a Nordic Council summit, told Reuters this why his small, north Atlantic nation needed further aid from abroad.

"We are talking about $4 billion from a number of sources," he said, mentioning the Nordic states of Sweden, Norway, Denmark and Finland, as well as Japan, Russia, the European Central Bank and the U.S. Federal Reserve.

Iceland called on the IMF for $2 billion in aid on Friday, and the Washington-based lender said an agreement had been reached on an economic programme that would be supported by the financial assistance.

Formal approval by the board of the IMF is expected soon.

Haarde also presented his case to other Nordic leaders and Swedish Prime Minister Fredrik Reinfeldt said the countries had agreed to look into the idea of aid.

"The Nordic prime ministers have said we will put together a working group to facilitate how the Nordic countries ..., linked to the IMF programme, could take forward some kind of effort from the other Nordic countries," he told a news conference.

Asked about the $4 billion figure, Reinfeldt said he could not name an amount as this was what the group would look at.

EU DEBATE

As well as the expected slide in gross domestic product next year, Haarde said the budget deficit would balloon to somewhere between 7 and 10 percent of GDP versus an original projection of 3.5 percent.

The expected economic pain from the crisis has further persuaded some in Iceland the country would be better off in the European Union and with the euro.

Icelandic Commerce Minister Bjorgvin Sigurdsson, also in Helsinki, told a news conference the country should renew its debate on whether to join the EU. His Social Democratic Party is the only major party backing EU entry.

"The times have changed and we will have to go through these things (discussions) all over again in the light of these new consequences of the financial crisis and the weakness of the (Icelandic) krona," Sigurdsson said.

A poll in an Icelandic newspaper on Monday showed public support for entering the EU and adopting the euro had surged to 70 percent. In September, support for EU entry was 55 percent while backing for euro entry was at 44 percent.

Haarde, of the Independence Party, which is in coalition with the Social Democrats, was more cautious.

"My position has not changed. It is confusing at the moment to take up this issue as a panacea," he said, adding that any entry to the euro zone would take several years.

(Editing by Neil Stempleman)