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Iceland will continue negotiating a loan from Russia, but the price both countries would pay for the deal might already be too high.

Negotiations between Russia and Iceland for a 4 billion euro (US$5.4 billion) bailout loan from Russia continue, Russian Finance Minister Alexei Kudrin said Oct. 27. With Iceland expecting a $2 billion loan from the International Monetary Fund (IMF) and possible billions from its Nordic neighbors, and with Russia facing its own severe financial crisis, both countries are finding it increasingly difficult to close the deal.

Iceland requested the 4 billion euro loan from Russia on Oct. 7 after its efforts to seek financing from its traditional allies had been rebuffed. Iceland sought financial assistance to head off a liquidity crisis triggered by Icelandic banks collapsing on carry-trade debt obligations. Until Reykjavik was willing to clean up its fiscal house and approach the IMF, the Nordic neighbors from which it would ordinarily seek loans were unwilling to lend it the necessary money. As a result, a team of Reykjavik central bankers traveled to Russia soon after Oct. 7 to begin negotiations with Moscow officials.