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Poll shows backing for Iceland deal on Icesave

By Omar Valdimarsson and Mia Shanley

REYKJAVIK,/STOCKHOLM (Reuters) - The Icelandic government's hopes to win a referendum on repaying $5 billion to Britain and the Netherlands got a boost from an opinion poll on Monday, while ratings agency Fitch warned of renewed economic uncertainty.

The long-running saga took a new twist on Sunday when the president for the second time rejected a law on repaying the debts, thus forcing a referendum on the proposal, which has already won parliament's support.

Icelanders in March 2010 rejected an earlier bill, but the government says the new deal has much better terms.

The debt to the Dutch and British was run up when the two governments repaid domestic depositors in online accounts called Icesave accounts, which were run by an Icelandic bank that collapsed in 2008 along with two other banks on the island.

An opinion poll of 771 people by research group MMR showed 57.7 percent in support of the new repayment bill.

The government is expected to decide on Tuesday when the referendum will be held though the law stipulates that it must take place within two months.

Fitch, which has Iceland on a "BB+" non-investment grade rating with a "negative" outlook, said resolving the Icesave dispute was crucial to getting the country back on a stable outlook and that the referendum could delay the lifting of capital controls -- key to restarting the flow of foreign investment.

"Until it is resolved, it does restrict access to international capital markets," Paul Rawkins, Fitch's senior director for western Europe, told Reuters. "I think the Icelanders really hope to regain access to capital markets, and this casts a shadow over that."

Iceland put capital controls in place to stem an outflow of funds from the country when all of its top banks buckled under a weight of debt during the 2008 crisis.

This is the second time Iceland will vote on Icesave and follows several months of negotiations between Icelandic, Dutch and British officials on a new repayment plan.

Rawkins said he doubted the current deal with Britain and the Netherlands would be superseded by a better one.


"Don't even mention Icesave," said petrol station worker Jens Sigurdsson, 55. "The president should simply have signed the bill -- we have to pay this whether we like it or not."

Lawyer Larus Blondal, the opposition's representative on the team that negotiated the deal, told daily newspaper Morgunbladid he was convinced there would be no further talks.

"It seems to me that the issue now is whether people want a negotiated settlement at all," he said.

There are also concerns that the issue could wind up in a court in the EFTA trade and cooperation bloc of which Iceland is a part. This could mean it may have to pay higher interest rates than outlined in the current deal.

Many Icelanders believe it is unfair that taxpayers must foot the bill for mistakes made by private banks.

Sveinn Gudjonsson, an office manager in downtown Reykjavik, said he had initially been opposed to repaying the debt.

"But I have now come to the conclusion that we should pay, and I will be voting in favor of the deal in the referendum," he said. "It's time to put this behind us -- and I don't want to take the risk of having my future decided by a European court."

(Additional reporting and writing by Mia Shanley and Patrick Lannin; Editing by Stephen Nisbet and Jan Paschal)