Sunday, October 12, 2008

Iceland May Cease to Exist?

Somewhere amongst the tangle and shuffle of failed U.S. banks and gyrating international markets lies the decimated financial remains of one of the most amazing countries in the world: Iceland. If we think we're getting hard hit by the economic downturn, it's nothing compared to what they're going through.

As Matt Yglasias puts it,
Small countries tend, in the nature of things, to have less-balanced economies than do big ones. And Iceland is a very small country with an economy that revolves more-or-less exclusively around fish, tourism, Bjork, and banking...

To put it in starker terms, Iceland is arguably the most developed country in the world, and after nearly all of its banking-based economy fell through the floor last month, much of the rest is now being violently withdrawn by foreign interests. Estimates put the still-mounting debt at about 12 times the country's GDP, totally unsupportable by a population smaller than Washington, DC (about 320,000). In the words of Geir Haarde, Iceland's Prime Minister, the country is facing "national bankruptcy" after taking control of the vast majority of its banking industry and its unpayable debt.

In line with such thinking, the Icelandic government has publicly stated that many foreign interests will not be paid their Icelandic savings, as there simply is no money to be had. According to the New York Times,
The British government has pledged unlimited protections for individuals. The Netherlands, which had a delegation set to arrive in Iceland on Saturday, has said it would compensate savers up to 100,000 euros.

British charities and local government organizations, which together had deposited more than £1 billion, or $1.7 billion, in Icelandic banks, are not so lucky. The British government says it will not cover the accounts but will provide help to individual municipalities that encounter trouble.

Which is another way of saying that England will keep Iceland on the hook for the cash – and it's a lot of cash. British PM Gordon Brown is pissed. The Guardian quotes him as "whatever is necessary to recover the money", which almost certainly means an additional legal and financial strain on an already overtaxed nation and a solution that no one is satisfied with. While talks went well today, and Icelandic assets in Britain are going to be unfrozen in exchange for an accelerated payback by Icesave, it still isn't clear precisely how the crisis will turn out.

Indeed, there's a chance that Iceland will no longer be an independent nation by the time this is over. Russia might take on a fair portion of the debt (for a price), but they've got their own problems now. Yglasias parrots one Canadian's suggestion that Canada annex Iceland, given their previous success with Newfoundland.

Which'd be, to say the least, different.


  1. It's unbelievable, isn't it? So sad.

  2. You'd think Bjork would prop up the economy even during the bad times.

  3. Yeah, a few Bjork concerts and they're fine. Actually I'm not kidding.

  4. Yeah, a few Bjork concerts and they're fine. Actually I'm not kidding.

    Ha! Yeah. I'm not sure she's quite popular enough to pull it off, but her income does probably account for an actual percentage of the country, given its size.

  5. Check of Bjork's editorial in the London Times, all about smelting and shit: