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REYKJAVIK, Jan 5 (Reuters) Iceland president rejected a bill to repay Britain and the Netherlands more than $5 billion their savers lost when Icelandic banks collapsed, forcing a referendum on the issue and threatening vital economic aid.

President Olafur Grimsson refusal to sign the unpopular Icesave bill into law on Tuesday plunged Iceland into crisis and put hopes of joining the European Union in jeopardy.

In Brussels, an Icelandic official negotiating Iceland EU membership bid said the government expected to hold a referendum in 4 to 8 weeks. The outcome is highly uncertain a recent poll showed almost 70 percent of voters oppose the bill.

Prime Minister Johanna Sigurdardottir, who has pushed hard for a deal to repay the two countries the money they used to compensate savers who lost funds canada goose coats in Icelandic accounts, said her government was committed to honouring Iceland Canada Goose Parka debts.

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On Tuesday the International Monetary Fund said the Icesave agreement was not a condition for the IMF agreement with Iceland as long as the loan program was financed by Nordic partner countries. [ID:nWBT013480]

The Dutch government said it was “very disappointed” and would demand an immediate explanation.

Only once before in the republic 65 years has a president refused to sign a bill into law, triggering a referendum.

“Now the people have the power and the responsibility in their hands,” Grimsson told a news conference.

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“This is a big surprise. it very market negative,” said Petter Sandgren, head of money markets at SEB. “I assume it would affect the IMF package.”

The cost of insuring Icelandic debt against default was little changed, with five year credit default swaps at 428 basis points after the news, compared with 427 on Monday.

One hundred basis points equals one percentage point.

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