Russia tells Iceland: $4 billion loan is "too much"

By Gleb Bryanski

MOSCOW (Reuters) - Lending tiny Iceland $4 billion (2 billion pounds) would be too much for Russia, a senior Russian official said on Monday amid new pledges of a swift international aid package from the European Union.

Iceland surprised the international community last month by raising the possibility of a Russian loan of up to 4 billion euros to help prop up its battered currency.

An Icelandic delegation came to Moscow last month to discuss the possible deal. The loan has not yet materialised but the Russian offer sped up the efforts of other international lenders due to worries over what Russia may ask in return.

"Now, $4 billion is too much, and for us it is too much," Dmitry Pankin, Russia's deputy finance minister, told journalists. Media speculated the Russian offer could be linked to a large amount of Russian stock held in Icelandic banks as collateral on corporate loans.

Pankin specified he now meant dollars, not euros as negotiated initially.

Iceland said on Sunday it had reached a deal with several European Union states on how to repay thousands of foreign savers with money in frozen Icelandic accounts. The European Commission said that a deal paves the way for international aid.

"This should indeed open the way for an agreement now for the financial aid requested for the country," said Amelia Torres, spokeswoman for the European Union's executive Commission.

Iceland faces a severe recession after the global financial crisis led to the collapse of its crown currency and the government takeover of three of its largest banks. It badly needs funds to revive currency trade and restart the economy.