Iceland parliament backs deal to repay UK, Dutch

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Wednesday, 16 February 2011 16:33 GMT

* Parliament backs new Icesave deal with UK, Dutch

* Aims to repay ${esc.dollar}5 billion in debts

* Helps remove uncertainty about island's recovery

(Adds president's office, Moody's comment)

By Omar Valdimarsson

REYKJAVIK, Feb 16 (Reuters) - Icelandic lawmakers backed a deal on Wednesday to repay ${esc.dollar}5 billion to Britain and the Netherlands for debts from a banking crash, bringing the island closer to resolving a dispute that has held back its recovery.

A total of 44 members of the 63-seat parliament backed the repayment plan which will help remove uncertainty as the small nation tries to rebuild a shattered economy.

The bill now needs to be signed by President Olafur Grimsson, who a year ago shocked the country by calling for a referendum which resulted in rejection of an earlier plan parliament had approved.

"We can now turn fully to the economic recovery," Finance Minister Steingrimur Sigfusson told parliament.

He told reporters after the vote that the nobody wanted to pay debts incurred by a private bank, but Iceland had no choice.

The president on Sunday said on state television that this was a much better deal.

A president's office spokesman said the president would not comment publicly on the vote on Wednesday, and declined to say when he would.

Iceland owes the money to Britain and the Netherlands for bailing out savers who lost money in online "Icesave" accounts run by Landsbanki, one of the top three banks which collapsed in late 2008 under a mountain of debt. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic on Iceland's currency and GDP growth:

http://r.reuters.com/rut97r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The actual cost to the state is expected to be much less than the ${esc.dollar}5 billion owed as the government says most of the repayment will come from selling the assets of Landsbanki.

The government has said the cost could be a maximum 50 billion crowns (${esc.dollar}425 million).

A resolution of the Icesave dispute will remove one of the key areas of uncertainty surrounding the island's economic recovery and help in talks on eventual European Union entry.

The financial meltdown caused the crown currency <EURISK=> <EURISKD3=> to collapse and forced Iceland to take a rescue from the International Monetary Fund (IMF).

Strict capital controls were introduced to stem a massive outflow of funds, keeping Iceland cut off from international capital markets and stunting its recovery.

"As we will wait for the president's response to the parliamentary decision, even a positive final vote won't have an immediate impact on Iceland's credit ratings," said rating agency Moody's analyst Kathrin Muehlbronner.

(Reporting by Omar Valdimarsson; Editing by Ron Askew)

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