The Icelandic president, Olafur Ragnar Grimmson has refused to sign into law a bill designed to reimburse money lost by savers when the Icesave bank collapsed. Mr Grimmson called for a referendum on the bill to be held.
The country's parliament approved the plans to repay 3.8bn euros (£3.4bn) to savers in the UK and the Netherlands in December.
The money would have gone to the British and Dutch governments, who partially compensated savers when the Icesave online bank failed. More than 320,000 savers lost out when the bank collapsed in 2008.
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