REYKJAVIK (AFP) - Despite the precarious situation a "no" vote could put them in, Icelanders are expected to thumb their noses at world opinion in this weekend's referendum and oppose an international compensation deal for money lost in the collapse of the Icesave bank.

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"We want fairness!" Olafur Eliasson, the founder of the Indefence movement opposed to the Icesave deal, told AFP.

"We are actually ready to pay, but only at certain conditions. If you don't like them... send your (war) ships," he said.

Eliasson's comments echoed the frustration felt by many of his countrymen in the run-up to Saturday's referendum on a government plan to pay Britain and the Netherlands 3.9 billion euros (5.2 billion dollars) to cover their reimbursements to 340,000 savers hit by the collapse of the online Icesave bank in October 2008.

According to the latest poll, nearly three quarters of Icelanders are expected to vote down the deal, despite widespread expectations that a "no" vote could hamper the Nordic country's recovery from its deep economic crisis, block its entry into the European Union and cause political turmoil.

When parliament voted through the Icesave deal last December 31, Indefence rapidly managed to scrape together a petition with some 60,000 signatures, convincing President Olafur Ragnar Grimsson to block its passage into law and instead refer it to a referendum.

Eliasson, a pianist turned amateur economist at the forefront of the opposition to the deal, insists the amount demanded by Britain and the Netherlands is exorbitant.

"It's a bit as if I broke your camera and you came back to me asking for five times the price and the right to take my house if I don't pay," he said.

Seen in terms of Iceland's small population, paying the requested amount would mean that each of the country's 317,000 inhabitants would be required to pay 100 euros a month for eight years, or the equivalent of a quarter of an average four-member family's salary.

Icelanders' opposition to the Icesave deal can also be seen against the backdrop of the so-called "cod wars" between Iceland and Britain in the 1970s over fishing rights in the North Atlantic, when the Icelandic coast guard on several occasions cut British trawler nets.

When Iceland's economy crumbled in October 2008, the inhabitants of this small island nation were perhaps most enraged over the British government's decision to use an anti-terrorism law to freeze British savers' assets in the stricken Icelandic bank Landsbanki.

But while standing up to London may lessen Icelanders' sense of humiliation, observers say a "no" vote is a risky venture for the country.

"We can only speculate," said Eirikur Bergmann, a European Studies professor at the Bifrost University, but "one possible scenario is that Iceland will continue to be held out in the cold in the international society, it can lead to some kind of national bankruptcy."

Britain and the Netherlands could for instance continue blocking progress on a 2.1-billion-dollar International Monetary Fund rescue package for Iceland until Reykjavik agrees to pay off its Icesave debt.

"The IMF programme will be put on hold. All reconstruction will slow down and most likely the rebuilding of the society will be one to three years later than predicted," Borolfur Matthiasson, an economics professor at the University of Iceland, told AFP.

No repayment deal could also negatively affect the Nordic country's EU and euro membership talks, sink its credit rating and destabilise the leftwing government, which negotiated the agreement in the first place.

In a worst case scenario, "Iceland will be isolated internationally which means that Iceland will not get its loans and can not therefore honour its obligations," Bergmann said.

There is however another possibility, he said, pointing out that "Iceland's voice (might) be heard and there will be a general understanding that the pressure from the UK and the Netherlands is way too much."

In an attempt to ward off chaos, the government in Reykjavik has been scrambling since the beginning of the year to negotiate a new accord with Britain and the Netherlands that would avert the popular vote.

On Tuesday, Prime Minister Johanna Sigurdardottir told reporters efforts to avoid the referendum were still ongoing and that the plebiscite could conceivably be postponed.

But time is rapidly running out, and late Wednesday a government spokesman said the vote would likely go ahead as planned.