Iceland had crossed the Rubicon without realizing it. It was now in no position to bail out its banks even if it wanted to, and it wasn't in the euro so the ECB had no obligation to help. On October 6, 2009, the government passed emergency legislation that gave them the power to overtake troubled financial institutions, bypassing the central bank. Any plans the central bank harbored to bail the banks were now dead. The banks were to be allowed to go bankrupt and be taken into receivership. Their debts were not socialized; instead bondholders and foreign creditors bore the brunt of adjustment.

Mark Blyth, Austerity, loc. 642