Iceland's president has announced that he will not sign a controversial bill to compensate the British and Dutch governments over the failure of Icesave bank.
Instead it will be referred to a referendum.
President Ólafur Ragnar Grímsson said, in a speech televised to the nation, that it has steadily become more apparent that the people must be convinced that ‘they themselves determine the future course’.
‘The involvement of the whole nation in the final decision is therefore the prerequisite for a successful solution, reconciliation and recovery,’ he said.
Under the Icelandic constitution, if a president refuses to sign a bill voted by parliament, the issue is put to a referendum.
The Icesave Bill, narrowly approved by the Icelandic parliament on 31 December, calls for the payout of €3.8bn to the British and Dutch governments for having compensated more than 320,000 British and Dutch savers who lost money in the collapse of the Icelandic bank.
The payout has stirred up resentment among many ordinary Icelanders hard hit by their country's financial meltdown in October 2008.
Around 60,000 people - about a quarter of the country's electorate - signed a petition protesting against the bill and calling for the issue to be put to a referendum.
Meanwhile, Britain's Treasury said it expected Iceland to meet its 'obligations' to compensate the government over the failure of Icesave bank.
The Dutch government said it was 'extremely disappointed' at the refusal of Iceland's president to sign the bill.