Iceland's hopes fade of avoiding vote on Icesave

REYKJAVIK (Reuters) - Iceland's hopes of striking a new deal on the terms for repaying large sums to Britain and the Netherlands suffered a setback on Tuesday when the island's Dutch creditors said no fresh negotiations were under way.

Icelandic Prime Minister Johanna Sigurdardottir said the North Atlantic island nation still hoped for a change of tune by its larger European neighbors, but played down the chances of an accord that would avoid an Icelandic referendum on the issue.

"If there were to be an opening of some sort, some way to reconcile our differences, then that would certainly be worth looking at," she said in a Reuters interview.

"But there are no such options visible at the moment."

Iceland's president refused last week to sign a bill setting out terms for repaying more than $5 billion owed to the two countries, forcing the government to call a plebiscite on the issue and jeopardizing aid flows to the cash-strapped nation.

A spokesman for the prime minister said earlier that Iceland had been holding "frantic talks" on Icesave with ministers in the Nordics, Britain, the Netherlands and the European Union, hoping to avoid a divisive referendum, expected in February.

But the Dutch finance ministry said it still expected Iceland to stick to the repayment deal it made in October.

"For us at this stage there is no renegotiation going on," a ministry spokeswoman said.

Britain said it was continuing to talk to the Icelandic government about resolving the situation. "We expect Iceland to live up to its obligations," a British Treasury spokesman said.

Although Iceland clung to the possibility of a new round of talks, the government admitted it was running short of time. It has recommended the referendum be held on February 20.

"I've said we would have to have something definite ... to put on the table if anything else was to take place than the referendum going through," Finance Minister Steingrimur Sigfusson said in a Reuters interview.

"... the lines are open and we will listen to each other."

ECONOMIC AID

The repayment terms have deeply divided the nation of just 320,000, and Sigurdardottir is not optimistic about avoiding a referendum, saying "major changes" in the British-Dutch position were needed. "At the moment I see nothing to indicate that such a change in tune is in the air," she said.

A deal with those two countries is seen as key to ensuring the uninterrupted flow of aid through a programme tailored by the International Monetary Fund to help Iceland out of the deep recession that followed the collapse of its banks in 2008.

Finance Minister Sigfusson said it would be "highly inappropriate" if Iceland was penalized by any delays to the programme.

The chances of the Icesave bill being approved in the referendum look slim.

Foreign Minister Ossur Skarphedinsson told state radio there was an "overwhelming likelihood" that the latest Icesave legislation would be rejected.

He said the government had received support from various corners, notably the Nordic countries and the president of the EU's ministerial council.

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

(Additional reporting by Omar Valdimarsson, Ben Berkowitz in Amsterdam and David Milliken in London, editing by Tim Pearce)