Iceland has agreed that European regulations require it to guarantee accounts of hundreds of thousands of Britons and other foreigners frozen in the online arm of one of the nation's collapsed banks, the government said Sunday.

Recognition of the legal principle ... is a significant step toward freeing up a $2.1 billion bailout package from the International Monetary Fund. ...

It isn't clear how the depositors would actually be paid. The European rules ... require Iceland to guarantee the first €20,000 ($26,000) of account holders' deposits. That sum could well run into the billions of euros, cash that Iceland's guarantee fund doesn't have.

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