**Iceland’s president has told the BBC’s Newsnight it will pay its debt to the British and Dutch governments.**The country’s willingness to refund the money those governments paid to citizens who lost money in the banking crisis has come under question.
The president, Olafur Grimsson, stunned observers on Tuesday when he refused to sign off a bill approved by parliament.
If passed it would have helped unleash much-needed loans and speed Iceland’s attempt to join to European Union.
“Junk” move
There has been significant public opposition to the Icesave bill, which commits Iceland to repaying $5bn (£3.1bn) to the UK and the Netherlands.
“This credit rating (downgrade) by Fitch has no practical consequences”
Olafur Grimsson, president of Iceland
There have also been international ramifications. This week one agency which assesses how safe it is to lend money to countries and companies, rated Iceland’s debt as “junk” in the wake of the president’s move.
But Mr Grimsson told Newsnight his action in refusing to sign the bill and hold a referendum had not harmed Iceland’s financial reputation.
“This credit rating (downgrade) by Fitch has no practical consequences,” he said.
A weaker credit rating makes lenders less willing to invest, and means the borrower has to pay a higher interest rate.
Mr Grimsson also denied he had acted in a high-handed fashion in overturning the wishes of Iceland’s parliament. He said parliament was there to represent the people’s will and the referendum was designed to test their wishes.
Bill of good faith
Further bail-out money from the International Monetary Fund and others - which Iceland’s recovery plan relies on - is also seen as dependent on Iceland striking a repayment deal.
Meanwhile the latest opinion polls suggest the referendum is not necessarily simply a rubber stamp to blocking the bill.
The latest opinion polls, quoted by the Reuters news agency, suggest a lessening of hostility.
Some 51%-58% are against, down from around 70% formerly.
Parliament will meet on Friday to plan the referendum on the controversial Icesave bill.
Opponents believe the payment terms are too onerous and will hurt Iceland’s economic recovery.