The people of Iceland should take some responsibility for the mistakes of their politicians and their financial regulators, specifically in connection with bank accounts called Icesave, for which there was no adequate deposit insurance. In other words, there should be a degree of "moral hazard" for bad policies in any democracy. But there is no nation on Earth where most of the citizens have a good grasp of banking oversight. Icelanders should not be enslaved to their government's debt - not at least without an opportunity for a full canvassing of the issue among all the voters.
Consequently, Olafur Ragnar Grimsson, the President of Iceland, was right to trigger a referendum by refusing to sign a bill passed with a narrow margin by the Althingi, the country's parliament, which would have imposed on the taxpayers a debt of about $5.8-billion. That would work out to an average of $18,000 each or $66,000 a household. Spread out over 15 years, with a possible seven-year extension, and renegotiation in 2024, that is not so very oppressive, but the raw total, especially in proportion to the annual gross domestic product, would provoke tax revolt in most countries.
Icesave was an online banking program of the Icelandic bank Landsbanki, offered in Britain and the Netherlands under EU rules, which paid British and Dutch depositors what turned out to be unsustainably high interest; the deposit insurance was not remotely enough. Iceland proved to be a microcosm that mirrored the overleveraging of many banks in the Western world, and the Icelandic banks collapsed quite early in 2008, before the financial crisis unmistakably struck elsewhere.
Canadians would probably be equally unwilling to compensate foreign account-holders if rogue elements and insouciant regulators had taken over at the chartered banks, the Bank of Canada, the Canada Deposit Insurance Corp. and the Office of the Superintendent of Financial Institutions. But if that happened, there would surely have been a few warning signs, and no people can simply wash its hands if the nation's institutions fail.
Mr. Grimsson has exercised a presidential power that has been used only once before in Iceland's history, acknowledging overwhelming popular opposition to the Icesave bill. It is to be hoped that the voters moderate their views during the referendum campaign and that the British and Dutch governments, their creditors, do likewise. This is a burden to be shared.