Iceland was under pressure yesterday to negotiate better terms after a referendum resoundingly rejected a deal to pay Britain and the Netherlands billions for losses in the Icesave bank collapse.
With 93.5 per cent of voters rejecting the deal on Saturday according to near-final results, Iceland's leftwing government has to radically rethink the Icesave compensation agreement, observers said.
Britain's Treasury said meanwhile it was still "committed" to securing a deal with Iceland.
The results were "such a decisive statement that the government cannot keep the same negotiation basis as before", Olafur Isleifsson, an economics professor at the University of Reykjavik, said.
About 230,000 Icelanders were called to polling stations Saturday on whether the country should honour the agreement to repay Britain and the Netherlands €3.9 billion at a high 5.5-per cent interest rate by 2024.
This would be to compensate the two countries for money they paid to 340,000 of their citizens hit by the collapse of Icesave in 2008.
Britain's Treasury and the Dutch finance ministry both described the referendum results as an "internal matter for Iceland".
The overwhelming "nei" vote was "nothing that comes as a surprise", Prime Minister Johanna Sigurdardottir acknowledged to the RUV broadcaster late Saturday.
"After this referendum it is our job to start finishing the negotiations," added Ms Sigurdardottir, who has said a new deal was around the corner while describing the plebiscite as "meaningless".
Reykjavik has for weeks been attempting to hammer out a new agreement with Britain and the Netherlands and has, under pressure from the opposition, even turned down a more favourable offer than the one voted on Saturday.
"The fundamental point for us is that we get our money back - but on the terms and conditions and so on we're prepared to be flexible," British finance minister Alistair Darling told BBC One's Politics Show yesterday.
Iceland's President Olafur Ragnar Grimsson, whose refusal to sign the compensation bill voted through parliament in December led directly to the referendum, meanwhile congratulated voters yesterday and said it was now up to British Prime Minister Gordon Brown to resolve the issue.
"Gordon Brown should now step forward and ensure the next steps to guarantee a solution that everyone can accept," he told RUV, adding: "The big question now is what Gordon Brown will do."
Some observers had warned that a "no" vote might delay the payment of the remaining half of an International Monetary Fund rescue package worth 2.1-billion dollars.
There were also fears it could hit European Union and euro currency membership talks, as well as Iceland's credit rating.
But a European Commission spokeswoman said the Ice-save matter and the member-ship bid were "two separate processes".
Icelandic Finance Minister Steingrimur Sigfusson stressed the importance of quickly securing a new deal, preferably before British and Dutch elections in May and June.
"If we were not successful in solving this before (those elections), it might take some time to form new governments so that could mean further delays," he told reporters yesterday.