We are all Icelanders!

In October 2008, amidst the confusion of the financial crisis, the UK and the Netherlands arm-twisted Iceland into taking responsibility for €4bn of British and Dutch depositors’ money presumably lost by Icelandic banks. This amounts to €12,000 per inhabitant, including new born babies and elderly people.

The legal case is complex but muddied. Iceland has a private deposit insurance scheme, clearly too small to cover the losses. According to the relevant European agreement, a country must guarantee depositors at its banks up to €20,000, regardless of nationality. However, there is nothing to say that the taxpayer should cover losses beyond what the insurance scheme can cover.

The moral case is clear. British and Dutch depositors chose to put their money in Icelandic banks to get higher interest rates, ignoring the age old wisdom that there is no free lunch. Greater rewards only come with greater risks. For obvious political reasons, Gordon Brown decided to make British depositors whole, and then turned to Iceland to get the money back.

On Sunday, Icelanders massively voted against a repayment agreement. They need our support. As a European citizen I feel ashamed that European leaders would threaten their tiny neighbour with economic and diplomatic isolation. And if you are a taxpayer, it is likely that your money was used to bail out your country's banks at some point, so you know how it feels to be coerced into paying for bankers' mistakes.

Part of the blame rests on an ill-conceived European agreement and a free-(for-all)-market mood that suited everyone at the time. Sure, Icelanders probably profited from the money that their banks were hauling in. But so did the British. If the bill for those collective mistakes was split evenly among all European citizens, it would amount to €10 per person. Surely that's something we can afford (even babies and grandmothers). And it is the right thing to do.