Talks surrounding Iceland's repayment of £2.3bn worth of debt to the UK and the Netherlands following the Icesave collapse have stalled after the Icelandic delegation walked out of talks.
The collapse of the Icesave in October 2008 bore a heavy toll on savers in the UK and the Netherlands, particularly.
National governments in both countries stepped in to compensate savers themselves, for which they are now seeking recompense from Iceland.
However, after a week of negotiations, the three governments have been unable to agree on revised payment terms.
In a statement, the UK and Dutch governments said they are "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".
It added: "This money is still outstanding to UK and Dutch taxpayers and we remain committed to reaching a final agreement with Iceland in due course."
Sources close to the talks said Iceland was offered a floating interest rate on the debt, based on Libor plus 2.75%, representing a significant cut on the 5.5% currently being charged. It could have also taken up a two-year interest holiday worth £400mn.
Iceland plans to hold a referendum on the Icesave repayment on 6 March, but the government is hopeful it can reach a deal ahead of that as polls suggest the majority of Icelandic voters would reject the repayment plan.
The dispute has delayed International Monetary Fund help for Iceland and has also overshadowed Iceland's application to join the EU.
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