* Talks fail ahead of vote on Icesave repayment bill
* Iceland owes Britain, Netherlands more than $5 bln
* Sides have argued over interest rate in proposal
(Adds details, second dateline)
AMSTERDAM/STOCKHOLM, March 5 Iceland walked away
from talks on Friday with the Netherlands and Britain over debts
related to the 2008 collapse of its banking system, a source
familiar with the matter told Reuters.
Iceland's parliament passed a law late last year to repay
the Dutch and the British more than $5 billion related to the
banking collapse, but the bill was forced into a public
referendum after Iceland's president refused to sign it.
Icelanders will vote Saturday on that referendum, which is
expected to fail by a wide margin.
A statement from Iceland's finance ministry said its
negotiating committee was returning to Reykjavik from London and
that it hoped for fresh talks as soon as next week.
But a source familiar with the situation told Reuters, on
condition of anonymity, that Iceland "walked away" from the
talks and that no new talks were planned or scheduled.
Iceland, however, denied talks have broken down.
"The official attitude here is that talks are ongoing and
it's just a break," a spokesman for Iceland's Prime Minister
Johanna Sigurdardottir said.
The spokesman added that Finance Minister Steingrimur
Sigfusson believes talks can continue after the weekend but
there was no confirmation of that.
On Feb. 19 Britain and the Netherlands proposed a new deal
to Iceland that would replace the agreement underlying the
referendum. That new deal lowered the interest rate Iceland
would pay and gave it a two-year interest holiday.
Iceland countered, however, that the interest rate proposed
was still too high and would inappropriately let its creditor
nations make a profit on the deal.
Britain and the Netherlands compensated savers in online
banks run by Icelandic banks, particularly Icesave, when the
island nation's system collapsed during the credit crisis.
(Reporting by Ben Berkowitz in Amsterdam and Nick Vinocur in
Stockholm; editing by Philippa Fletcher)