Many agree, times are tough right now. Yet, no country right now is suffering the level of crisis that Iceland is. A small number of investors in Iceland have essentially turned the country’s banking system into one giant hedge fund. In response, many concerned Icelanders have taken to the streets, especially in the capital of Rejkjavic, to protest these “financial Vikings” and call for re-regulation to come to the banking industry.
So how did Iceland get into this situation? Review an earlier post on the globalEDGE blog. Essentially, Iceland’s private sector banking system was chiefly comprised of three main banks, and at their peak, their assets were so large that they accounted for more than ten times the GDP of the country of Iceland itself. When the credit crunch and financial crisis hit, you can guess what happened next. The banks lost their assets, nearly 90% of them, investors lost their money, and since the assets of the banks were greater than the country of Iceland’s GDP, there was no way they could receive a bailout from them. The Icelandic currency, the Krona, has lost more than half its value, and Iceland’s GDP is expected to dive near 10% for 2009. Other stats on Iceland are available on globalEDGE.
So who does Iceland turn to? The U.S. Federal Reserve, Bank of England, and European Central Bank have all turned them down. So Iceland turned to Russia. Russia was eager to hear Iceland’s plea, however, the bail-out may not come anytime soon. Iceland has maintained that it will not change its foreign or security policies for a bailout. Unfortunately, a bailout from Russia would likely come attached with a need for just this type of policy change. In the meantime, Icelanders must do as the Vikings living there before them did, and perhaps cause a little havoc in order to get their country back from it’s financial abyss. Oh well, at least travel there is cheap! More to come soon!
For more on this, check out these articles from CNN and The Chicago Tribune!