**Talks to agree how Iceland will repay more than $5bn of debt it owes to the UK and the Netherlands have broken down without agreement.**The collapse of the Iceland-based Icesave online bank in October 2008 hit savers in both countries.
The UK and Dutch governments, which compensated savers, want Iceland to repay 3.8bn euros (£3.3bn; $5.4bn).
However, the three governments have been unable to agree on revised payment terms after a week of negotiations.
“We had hoped to be able to reach a consensual resolution of this issue on improved terms, but this has not yet been possible,” said Iceland’s finance minister Steingrimur Sigfusson.
In a statement, the UK and Dutch governments said they were “very disappointed that despite all the efforts over the past year and a half, Iceland is still unable to accept our best offer on the Icesave loan”.
Stricken economy
Iceland plans to hold a referendum on the Icesave repayment on 6 March, but the government was hopeful it could reach a different deal ahead of that.
Opinion polls suggest that a majority of Icelandic voters would reject the repayment plan.
The dispute has delayed International Monetary Fund help for Iceland, which Reykjavik needs to shore up its stricken economy.
The country’s parliament voted for a referendum on the Icesave bill after President Olaf Ragnar Grimsson vetoed the repayment to the UK and the Netherlands.
Opponents say the repayment plan forces Icelandic taxpayers to pay for bankers’ mistakes.
The dispute has also overshadowed Iceland’s application to join the EU, which was submitted in July.
Iceland’s economic crisis persuaded many of its politicians that it would be better off inside the 27-nation bloc.