Iceland’s president vetoed a bill that would bail out foreign investors in Iceland’s failed banks. The bill was extremely unpopular in Iceland, as taxpayers were not thrilled with the prospect of paying to cover the non-guaranteed, high-risk bets made by foreigners. Apparently the foreigners wanted high returns without accepting the risks.

That’s the clean summary, but reality is a little messier. See, Iceland bailed out their domestic depositors. For obvious reasons, this wasn’t quite as unpopular as the idea of bailout of foreign investors. Unfortunately, Iceland signed a treaty to become an EU candidate. Part of that treaty states that Iceland won’t treat domestic market participants differently than foreign participants. This puts Iceland in a bit of a bind. Unfortunately, not being a debt slave is a higher priority for the average citizen of Iceland than becoming a member of the EU.

The linked article explores another complication, dealing with the IMF.