Iceland's prime minister sought to draw a line under the bitter spat with Gordon Brown last night by insisting they were now working together to deal with the banking crisis.
Mr Geir Haarde said he was cooperating "amicably" with the UK, and that his country would "honour its obligations".
However, he again refused to guarantee that British taxpayers hit by the collapse of the Icelandic banking sector would get their m
oney back.
Mr Haarde was speaking after Treasury officials arrived in Reykjavik for talks to try and settle the dispute, which involves some £1bn of local council money as well as billions more from small investors.
More than £70m of Yorkshire taxpayers' money is caught up in the country's banking collapse.
It also emerged yesterday that the Chelsea Building Society has some £55m invested in the troubled country, while charities are thought to have more than £120m tied up. Two NHS Trusts – Central and North West London NHS Foundation Trust and The Christie NHS Foundation Trust in Manchester – stand to lose around £2m.
The Iceland PM had previously reacted angrily over the use of anti-terror laws to freeze Icelandic bank assets in the UK, branding it a "completely unfriendly act" and blaming Britain for the collapse.
But Mr Haarde struck a more positive note last night, telling a press conference that he had now received a letter from Mr Brown outlining his position.
"We will now be able to start working together to find a solution," he said. "We will honour our obligations. We may need some support from UK authorities in order to do that in a proper way."
He said the "strong words" from Mr Brown – who has described Iceland's behaviour as "totally unacceptable" and threatened legal action to recoup cash – would "never help" the situation.
Downing Street confirmed that the Treasury delegation – which included officials from the Bank of England and the Financial Services Authority – was in Reykjavik.
Mr Brown's spokesman said they hoped now to work "constructively and cooperatively" with the Icelandic authorities. However he strongly defended the Government's action in freezing the Icelandic assets.
"The Prime Minister made clear, as is the case, that the behaviour of the Icelandic authorities had been unacceptable," he said.
"We had found it very difficult to get information from them. They had indicated that they would be giving preferential treatment to domestic creditors over overseas creditors."
The South Yorkshire Pension Authority, which administers a fund for all councils in the Riding, said it has £18.5m in Iceland and that it may "take some time" to know how secure the money is – but that it will have no affect on pensions "whatever the outcome".
Wakefield Council has £9m in Icelandic accounts, Bassetlaw £8m, North East Lincolnshire £7m, North Lincolnshire, £5.5m, Rotherham £3.75m, Doncaster £3m and Kirklees £1m.
West Yorkshire Police Authority has £6m, Humberside Police Authority £5.57m and South Yorkshire Passenger Transport Executive £6m.
Private companies are thought to have in excess of £10bn trapped in Icelandic accounts.
City Minister Paul Myners has also met charity group leaders to discuss the estimated £120m they have tied up in Iceland.
Speaking after the meeting, Charities Aid Foundation chief executive John Low said: "They gave reassurance they would do their best to help but there was not any guarantee, as we would have liked."
The charity with the largest amount invested in Icelandic banks known to the public so far is Cats Protection. It confirmed earlier that it had £11.2m of deposits in Kaupthing Singer & Friedlander (KSF). A spokeswoman said it would have "no impact at all on the charity's day-to-day operations".
A spokesman for Monitor, the regulator overseeing the 107 NHS foundation trusts in England, said services would be unaffected.
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