I think I've got this right. A bunch of British people invest their monies in Icelandic banks because they're offering really really high-interest rates. Only these banks then go bust because in monetary terms what they were offering was a total shower of unsustainable shit.
The UK Government under pressure from these greedy bastards who've lost all their money decide to recompense them with a view to claiming the money back at a later date from the Icelandic Government.
Unfortunately these were private banks and the Icelandic Government has taken the opinion that's it's fuck all to do with them. They hold a referendum to ask the Icelandic people if they'd like to cough up the money these private banks owe UK customers.
They voted no. They say collectively that they'd rather not fork out billions of pounds for something that in fact is nothing to do with them.
The treasury accepts that the Icelandic Government is under no obligation whatsoever to underwrite the debts of a private bank, but explained they were sort of hoping they'd just pay up anyway.
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