The amazing story of Iceland's boom and then bust is the lead story in the new chapter on trade, bubbles, and market making in the second edition of the text. The saga continues.
As part of the boom, Icelandic banks offered very attractive interest rates to foreign depositors in the UK and the Netherlands through Icesave accounts. When the bust came, the foreign governments ended up picking up the guarantees on the deposits. And, they want their money back.
As part of the bailout negotiations, the Icelandic government had agreed to repay the UK and the Netherlands for the amount of the guarantees (which come to about $17,000 per citizen in Iceland - ouch!), and its parliament recently passed a bill authorizing the re-payments. Yesterday, however, President Olafur Ragnar Grimsson vetoed the bill, which about 70% of the population reportedly opposes.