President Ólafur Ragnar Grímsson chairs the first meeting of Iceland's new Prime Minister Jóhanna Sigurðardóttir's Cabinet, on February 01, 2009 - - Sigurðardóttir is the longest serving member of Iceland's Parliament, the Althingi. She is the first openly gay head of goverment and her spouse, Jónína Leósdóttir, is an author and playwright.

Iceland's president announced today that he would not sign a Bill to compensate the British and Dutch governments over the failure of the online Icesave bank and voters may now decide on the the issue in a referendum.

Iceland agreed last October with the British and Dutch governments to repay almost €4 billion lost in a failed Icelandic bank, by 2024, paving the way for more IMF (International Monetary Fund) aid as it struggles to restructure its economy after the dramatic economic crash in 2008.

Iceland was required by EU rules to maintain deposit insurance for its banks and when Landsbanki Islands bank collapsed last year, billions of dollars in deposits were lost in its Internet unit named Icesave by British and Dutch depositors.

The deposits were attracted by the highest interest rates in the UK and the Netherlands.

The British and the Dutch governments refunded the deposits and Gordon Brown's government used the UK Prevention of Terrorism Act to freeze the transfer of funds from the UK.

The repayment of €4 billion would be a stunning blow to the population of over 300,000.

UK local authorities alone had deposited £900 million in Icelandic banks

The UK agreed to lend Iceland £2.35 billion and the Netherlands will lend €1.2 billion, Prime Minister Jóhanna Sigurðardóttir said in Reykjavik in October. The first seven years would be interest-only, then repayments would be tied to Iceland’s economic growth.

"I have decided, according to Article 26 of the Constitution, to refer this new Act to the people," President Ólafur Ragnar Grímsson said in a televised speech.

Grímsson has a PhD degree in political science. He was a professor at the University of Iceland, served as Member of Althingi (parliament), was Minister of Finance 1988-1991 and served as chairman of the People's Alliance Party.

"The cornerstone of Iceland’s constitution is that the nation is the highest judge for the validity of law,” Grímsson told reporters at his residence near the capital Reykjavik today. He vetoed the so-called Icesave accord after more than 60,000 of Iceland’s 320,000 population signed a petition urging him to reject the legislation.

Polls show that about 70% of the population oppose the Bill.

However, if the British and UK governments insist on payment of the amounts they compensated their citizens for losses, IMF aid to Iceland will be at risk.