The Committee to Nuke Elysium

The debt was incurred when Britain and the Netherlands compensated their nationals who lost savings in online ‘Icesave’ accounts owned by Landsbanki, one of three Icelandic banks that collapsed in late 2008.

Icelandic lawmakers in February backed the repayment plan agreed with creditors in December but the president refused to sign the bill, triggering the vote.

Iceland rejected an earlier Icesave repayment blueprint in a referendum last year.

Many Icelanders say taxpayers should not have to bail out irresponsible banks.

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Policymakers and economists have said solving the Icesave issue would help Iceland, whose economy fell into deep recession after its banks failed, get back into foreign credit markets to fund itself.

That is a condition for it to remove controls on capital flows it imposed in 2008 to stabilise a tumbling currency.

The controls have left an estimated equivalent to a quarter of Iceland’s gross domestic product in the hands of foreign investors, many of whom are expected to want to pull out when controls are lifted.

Ratings agencies follow the vote closely. Moody’s has said it may lower its credit rating on Iceland in case of a ‘no’.

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Britain’s Chief Secretary to the Treasury Danny Alexander said he was disappointed that Icelanders had again rejected the debt deal, adding that the issue would now probably go to the courts.

‘It is obviously disappointing that it seems that the people of Iceland have rejected what was a negotiated settlement,’ Mr Alexander told BBC television.

‘Of course we respect the will of the Icelandic people in this matter and we are going to have to now go and talk to the international partners with whom we work, not least the government of the Netherlands. It now looks like this process will end up in the courts,’ he said.

Dutch Finance Minister Jan Kees de Jager said he was very disappointed that Icelanders had rejected the deal.

‘I am very disappointed that the Icesave agreement did not get through. This is not good for Iceland, nor for the Netherlands. The time for negotiations is over. Iceland remains obliged to repay. The issue is now for the courts to decide,’ Mr de Jager said in a statement.

He added that the Netherlands will consult with Britain about taking further steps.