Basically, it’s going to financially cripple Iceland for the foreseeable future.
Icesave (et al.) was established as the product of a branch of the Icelandic banks, and therefore not under UK/Dutch/etc. control. Everything then went mammaries-skyward.
Iceland had agreements in place that it would have a prudential fund that would repay the first 20,000 Euro to every depositor. The fund hadn’t been properly established/regulated and therefore wasn’t in a position to follow through on its obligation. The UK/ND governments took the position that as this was a governmental obligation, the Icelandic government should make good. Iceland disagreed.
Excrement went down. The UK essentially declared this to be a piece of financial terrorism and, therefore, that Icelandic assets could be seized to compensate UK citizens.
As part of a negotiated settlement, Iceland agreed that the UK and Dutch governments would pay part of the guarantees and that the Icelandic government would pay them back at a certain point in the future. Everything cool?
Now the Icelandic people have voted against this. No-one’s quite sure what this means, as the government’s already made commitments. Norway’s hanging off on making a desperately-needed loan until they know whether the Icelandic government’s going to pay them back. There’s a good chance that the IMF will feel that Iceland’s in default of commitments, too.
If it’s not sorted out pretty quickly, the Icelandic government will be effectively considered to be in sovereign default, which isn’t the sort of thing that you do lightly.