Iceland and Britain backed away from a full-blown diplomatic war on Thursday over the decision by the Icelandic president to veto a bill on the repayment of a $5.7 billion loan, according to AP. A day after Britain warned that Iceland risked becoming an international pariah, Icelandic Foreign Minister Ossur Skarphedinsson said he had received assurances from his British counterpart David Miliband that Britain would not block Iceland"s entry to the European Union in retaliation. Moving into wider international damage control, the embattled Icelandic government also dispatched Finance Minister Steingrimur Sigfusson to two fellow Nordic countries in a bid to persuade them not to pull the plug on a much-needed bailout package. President Olafur R. Grimsson, meanwhile, stressed that Reykjavik would still honor its commitments. Grimsson caused the crisis by refusing to sign into law legislation to repay Britain and The Netherlands money they used to compensate their citizens who had invested in Icesave, a collapsed Icelandic Internet bank. Grimsson"s decision _ only the second time in Iceland"s history that a president has vetoed a bill passed by Parliament _ triggered a national referendum on the issue, tentatively scheduled for Feb. 20. While the referendum refers to the terms of the loan repackage and not the commitment to repay the funds, the likelihood of a «no» vote in that poll raised hackles in Britain, which already is struggling under its own debt burden from the global credit crisis. Fueling the worst political standoff between the two countries since the Cod Wars of the 1970s over fishing rights in the North Atlantic, British Financial Services Minister Paul Myners on Wednesday cast doubt on Britain"s support for Iceland"s EU bid. Both Britain and The Netherlands have the ability to veto Iceland"s entry to the European body, a step that most analysts see as essential in the tiny island nation"s economic recovery. Skarphedinsson said that his discussion with Miliband was affected the «difficult dispute» they are engaged in, but added that the British foreign minister had pledged his support for Iceland"s EU bid. «Mr. Miliband stated quite strongly that the situation ... would have no detrimental impact with the British trying to do anything to influence that,» Skarphedinsson told The Associated Press by telephone from Reykjavik. «He stated explicitly that Iceland had its support for the EU.» Skarphedinsson said he had received no direct assurances from the Dutch, who have not publicly raised the issue. Britain"s Foreign Office said in a statement that it «fully supports Iceland"s application for EU membership.» It added it was disappointed with Grimsson"s decision and was consulting with Iceland on «how this problem can be resolved.» Skarphedinsson said he told Miliband that he was duty bound to uphold Iceland"s constitution and facilitate the referendum, even though his government is strongly opposed, and added that it was «imperative» that Iceland continue to receive a joint IMF and Nordic $4.6 billion bailout package to aid its economic recovery. The IMF has said that payment is not a condition of the rescue package so long as the economic program worked out as part of its loan is fully financed, but the Nordic countries have explicitly linked the two, potentially delaying the whole program. Sigfusson is scheduled to meet with his counterparts in Denmark and Norway on Friday. Grimsson argued that his move would restore «reconciliation and harmony» in Iceland where many ordinary Icelanders blame a handful of «venture Vikings» for leading the country away from its traditional fishing industry base in favor of a grossly overweight banking sector that left it heavily exposed to the global credit crisis. If the 243,000-strong electorate votes «no» to the so-called Icesave bill _ named after the failed Internet bank _ earlier legislation will still stand, paving the way for further talks between the three countries to reach a mutually acceptable deal. But it already has taken Iceland into uncharted waters by pitting the people and the president against the elected government, with some analysts suggesting one or the other will be forced to resign after the vote.
