Iceland Goes Bankrupt

As crazy as it sounds, this statement is true – Iceland Goes Bankrupt. How could it be? How could an entire nation, an entire country, especially a country that’s as beautiful and safe as Iceland go bankrupt? What’s the truth behind the rumors of bankruptcy? Read on to find out…

Iceland Goes bankrupt

In October 2008 the world wide economy crash has reached a level that no one could foresee and the entire country of Iceland has gone bankrupt. Level of economic insecurity that Iceland has reached is unprecedented in the European community. As a result, Iceland’s local currency – Icelandic Krona has become valueless to the rest of the Global Economy. The beginning of this slide that lead to bankruptcy of Iceland reaches back to the year 2000 – when Icelandic banks were completely privatized. At that time, Iceland’s local banks where primarily domestic lenders and rarely lent internationally. Five years later, 2/3 of Iceland’s financing has come from international sources. In October of 2008, the Icelandic government decided to seize to control of the banks to try and get a handle on the crisis. Despite efforts, little could have been done and as such, Iceland goes bankrupt.

Unfortunately for Iceland the international community is not rushing to their side to help. There are rumbling of Iceland trying to have their currency moved in with the Euro. The Euro came to existence in 2002 and is the basic monetary unit of most countries that are members of the European Union, which was formed in 1999. Iceland however has been hesitant to join the European Union.

Iceland Gets Help to Avoid Bankruptcy

In order to avoid bankruptcy, Iceland has been desperately looking for loans to help them rebound in the wake of the crisis. Russia has been mentioned as a loan member with Iceland approaching Russia for a 4 billion euro loan. There has been no agreement though. Most leaders in the world economy believe that the International Monetary Fund is going to have to be the leaders in Iceland’s rebound. The International Monetary Fund has been sending teams of experts to Reykjavik, the capital of Iceland to meet with Icelandic officials to help direct the correction course.

The first move was the take-over of the last of the banks and shut-down of the local stock market for a period of time to get things under control. International trading is all but finished and many of the European Nations are taking notice. If Iceland goes bankrupt, countries like the United Kingdom will take a hit as they have large international debts themselves and Iceland was one of their biggest debtors. As it turns out, the Great Britain has been fiddling around with the idea of suing Iceland to get their money back.

As if going bankrupt in 2008 was not bad enough for Iceland, the beginning of 2009 seems to make matters even worse. When the government took steps to help solve the problem by taking over the banks and shutting down the stock market they where expecting the economy to contract by 1.6% in 2009. Latest reports however suggest that the economy is going to contract by at least 10% in 2009 and 2010. To make matters yet worse, the rate of inflation has jumped to 13.1% in 2009.

Protests in Reykjavik, Iceland

Protests in Reykjavik, Iceland. David Oddsson was Prime Minister of Iceland from 1991 to 2004 and has chaired the board of governors of the Central Bank of Iceland since 2005. He's believed to be responsible for collapse of Iceland's banking system that lead to bankruptcy. Photo: Kristine Lowe, Flickr

Future of Iceland

The 2.1 billion dollar loan package that the International Monetary Fund worked out with Iceland has not had the desired results with the economy. Currently the Icelandic economy is still crashing and inflation is rising. Things are getting worse in Iceland. Come beginning of February 2009, Icelandic President Olafur Ragnar Grimsson had a resignation letter from Prime Minister Geir Haarde on his table. Geir Haarde and his conservative government were leading Iceland since 2006. President Olafur Ragnar Grimsson made the decision to give the lead over the economically troubled country to the center-left Social Democratic Alliance Party who will be in charge along with the Green Party until the election day.

The Social Democratic Alliance Party are in favor of Iceland joining European Union, Greens are a bit skeptical about it and would prefer retention of Iceland’s independence. Conservatives from the Independence Party of Iceland who were ruling Iceland since 1991 will likely have little say over the decision, as Icelanders went out to the street to protest against the ousted government blaming them for failing to oversee Iceland’s banking system which brought once prosperous nation on the brink of bankruptcy.

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