The Netherlands and Britain are proposing a new deal to allow Iceland to repay its €3.8bn debt which may help the country to avoid a risky referendum next month, international news agencies report.

The deal would involve a floating interest rate which will ease the island’s debt burden, a source told news agency Reuters.
‘I believe this is something we could work with,’ prime minister Johanna Sigurdardottir was reported as telling Iceland’s state radio.
The Netherlands and Britain lent Iceland the money to repay their citizens who lost money when internet bank Icesave collapsed.
But the repayment plan has divided the country, which has a population of just 300,000. Opponents say it will cripple the island’s economy for years to come.
Officials are now working on a compromise agreement which could head off the referendum, scheduled for March 6.
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