We're all Icelanders now

If voters in the US or the UK had been given a vote on whether their governments should inject trillions of dollars into their banks (in the form of loans, guarantees and investments), it is pretty likely that those referenda would have been lost.

Most opinion polls indicated that citizens were furious with their banks - and were not persuaded that letting them fail would wreak the kind of economic havoc that would impoverish all of us.

So most economists, central bankers and finance ministers would probably say that we should be grateful that in America and Britain the people aren't quite as sovereign (if that makes sense) as in Iceland.

However most of us should surely empathise with the majority of Icelanders who don't see why they should be punished for the greed and stupidity of a handful of banks and bankers.

Actually, let's be clear: they will vote in their referendum on whether they should be punished yet more for the mistakes of their banks; there's no doubt that Iceland and its citizens have already been firmly spanked for the failures of their financial system.

Icelanders' real disposable incomes fell almost 20% last year and are forecast to fall a further 15.8% this year.

In other words, each of them will be a third poorer on average as a result of the deep dark recession caused by the collapse of their over-stretched banks.

Of course, they all became unsustainably wealthier during the boom years of the early-to-mid noughties, when hot money gushed into high-interest rate Iceland as part of the global carry trade and was re-lent and re-invested all over Europe, but especially in the UK.

That said, losing income is always painful, irrespective of whether that income is sustainable and deserved in some fundamental economic sense.

And by the way, those of you who put your money into Icesave accounts for the extra increment of interest that wasn't available from more mainstream banks: well, you too could well be charged with fecklessness and with receiving unsustainably high returns.

Yet you have been bailed out, by Her Majesty's Treasury - which is now insisting that Icelands' beleaguered citizens pay it back.

So let's be honest, Icelanders' reluctance to dig into their pockets to the tune of £3.4bn to repay Britain and the Netherlands is understandable.

And for me what this saga illustrates is something I've been banging on about for ages, which is the democratic deficit between people and finance, between citizens and big banks.

Icelanders now know, more than any nation on earth, that when banks run into difficulties, they have to be bailed out by all taxpayers.

We've learned that too.

But we weren't as aware of it as we should have been, before the crisis.

And, arguably, we haven't yet been properly consulted on what kind of banking system we want, what kind of risks we think the banks should run, for the future.

Given the economic price we've all paid for the reckless behaviour of banks, it's perhaps surprising that we're not all as angry as the Icelanders.