Iceland rejects Icesave debt repayment deal

Iceland has rejected a deal with the UK and the Netherlands to repay debts relating to the collapse of Icesave.

For the second time, the country's population overwhelmingly rejected proposals to pay back £2.3bn to the UK in a referendum.

Under the deal, Iceland would have paid back the sum at an interest rate of 3.3%, with the recovered assets of Icesave's parent bank, Landsbanki,  expected to cover the majority of the debt.

However, the 'no' campaign had said the deal put "an incredible financial burden on Icelanders" and insisted "there never was any legal obligation for Icelandic citizens to shoulder the losses of a private bank", the Telegraph reports.

The previous proposed deal, which put the interest rate at 5.5%, had been rejected in January 2010 by 93% of the voters.

The failure to reach an agreement means Iceland's quest for membership of the EU may be threatened, while the British and Dutch governments may pursue the matter through the courts.