Iceland considers Icesave counter-proposal

Iceland could make a counter proposal to a new deal offered by Britain and the Netherlands on repaying "Icesave" debts, the government said on Monday.

The Icelandic government and opposition party members are slated to meet at noon to continue discussions about new terms proposed by the British and Dutch governments last week for the repayment of more than $5 billion (3.23 billion pounds) lost by savers when the island's top banks collapsed.

"There may be a counterproposal from Iceland for the UK and the Netherlands. This is possible" said Elias Jon Gudjonsson, spokesman at the finance ministry.

On Friday, Britain and the Netherlands bowed to Iceland's pleas, and offered easier terms for repaying money the two nations forked over to savers who lost deposits when Iceland's banks collapsed in late 2008.

"The leaders of the political parties will try to have a unified attitude towards a reply or a new bid to respond to the bid of the British and the Dutch" Einar Haraldsson, spokesman at the prime minister's office, told Reuters.

"They are earnestly trying to respond and we'll see what comes out of it, but there is still no agreement on it on the Icelandic side."

Iceland's government has been pushing hard for a new deal in order to avoid a referendum planned for March 6 when voters are likely to reject repayment terms already agreed with the British and Dutch and passed by the parliament in Reykjavik.

The national vote was forced on the government when the country's president refused to sign the bill. Defeat in the referendum would undermine the government's authority and further damage its standing in international capital markets.

Iceland wants a solution to the Icesave issue as soon as possible to unlock much-needed financial aid for the stricken economy. 

But many Icelanders believe the terms of the original repayment plan are far too harsh and want greater flexibility from Britain and the Netherlands.

To complicate matters further, Dutch Prime Minister Jan Peter Balkenende's coalition government collapsed over the weekend after the two largest parties failed to agree on whether to withdraw troops from Afghanistan this year as planned.

Parliamentary elections in The Netherlands could be held mid-year at the earliest, but would probably be followed by months of talks between parties to form a coalition government.