With a solid 60% turn out and a 93% support of their government’s hard line the Icelanders have voted to not pay for the compensation the UK and Dutch governments gave their citizen who invested in the failed Icelandic banks.

The UK is in the red to the tune of £2.3 billion over this after the government decided to step in and bail out UK investors who had money in those banks.

But Iceland is a very small place and expecting them to pay this money over quickly is not realistic. As the Chancellor said on The Politics Show on BBC1 “You couldn’t just go to a small country like Iceland with a population the size of Wolverhampton and say, 'Look, repay all that money immediately'. So we’ve tried to be reasonable, the fundamental point for us is that we get our money back — but on the terms and conditions and so on, we’re prepared to be flexible.

This is the first referendum that Iceland has had since 1944. And that one abolished the Act of Union with Denmark and gave them the Republic of Iceland and a new republican constitution. They were celebrating last night in the way they probably did back then as it gives them the power to dictate the terms.

The Icelandic government can now hide behind the skirt tails of their electorate. They can hold their hands up and say ‘look the electorate have spoken’. Even the threat of the junking of the Icelandic Krona by the credit agencies probably now holds little fear for them.

But this also sends a very worrying message around the indebted planet. How many other countries on the verge of insolvency would like to take the same route of do-it-yourself loan restructuring?

To their government’s credit though, Johanna Sigurdardottir the Prime Minister of Iceland boycotted the vote and said they would be pressing on with talks about paying the money over. But this may have a lot to do with the upcoming discussions over Iceland’s membership of the EU.

The average Icelander probably had no real idea that their bankers were involved in such risky ventures. Whereas many investors were quite happy to take the advertised high returns without equating high returns with high risk. But that risk was taken out of the equation by the UK government to protect savers but after they had failed them with lax regulation.

£2.3 billion is a heck of a lot of money, but in the grand scheme of things it probably equates to a couple of days of UK government borrowing. I also wonder what the result would have been if there had been a referendum in the UK on not paying the banks back for mortgages, loans and credit card debt?

Comment Here!