Power to the people. Next month, Icelanders may get to vote on whether they would like to hand over €12,000 each to the UK and the Netherlands. It seems a no-brainer. But if Iceland refuses to repay the €3.9bn debt, it risks becoming an international pariah.

It still need not come to that. Most Icelanders acknowledge, albeit grudgingly, they have to meet their international obligations; the president signed an earlier loan agreement to that effect last year. But the UK and the Netherlands objected to some of its terms and demanded changes. The new agreement is hardly punitive: a 15-year loan, with a seven-year grace period and a chance to renegotiate terms in 2024. While the 5.5 per cent interest rate is higher than current British or eurozone borrowing costs, neither country is pocketing a juicy spread: yields on 15-year Dutch government bonds are about 4 per cent, while UK bond yields are half a percentage point more. Perhaps these details can be tweaked; ultimately all three governments need do a better job of explaining to their people the costs of rejecting a deal.

Iceland's situation is extreme, but several governments nearby are also having to persuade their citizens of the need to tighten their belts. So far Ireland and Latvia have been willing to take the pain of required economic adjustment as the price of euro membership. The jury is out on Greece and Spain. Then there is the historic example of serial defaulter Argentina. Ten years after repudiating its international debts, Argentina hopes to strike a deal with unpaid creditors this month. A similar path must be an unappealing prospect for Iceland. A decade is a long time to spend out in the cold, particularly if all you have left to eat is fish.