Tuesday, October 14, 2008

Iceland - the rise and fall of a tiny island

Iceland has been in the news a lot recently, one of the most prominent early victims of the financial crisis. Here is a country that had a booming economy, brought to bankruptcy. Stories of potential food shortages due to the collapse of the banking system and the consequent inability to pay for imports highlight the stark reality of what has happened, almost overnight, to Iceland and what could happen to the rest of the world if the crisis spirals out of control.

But underlying it all were still some questions - particularly, how in the world did a country with a population of less than 350,000 become so rich off of so much speculation without anyone noticing that there was a fundamental lack of underlying assets? The Financial Times has an insightful piece on the subject.

As a result of this meltdown, of course, a lot of the hurt is being felt by the UK as UK councils across the country, and even Transport for London and the Metropolitan Police Authority, not to mention numerous charities see millions of pounds frozen, most of it likely lost for good. So the UK-Iceland relationship isn't at its zenith at the moment.

Even more interestingly, who rears its ever-more powerful head in the midst of all this? Russia, with whom Iceland is currently negotiating to obtain a loan. Russia, huh? Let the Arctic wars begin!

Now it looks like there may be a return to fishing on the part of Icelanders - when all else fails, go back to tangible, smellable goods.


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