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October 9, 2008

Iceland On The Brink Of Bankruptcy: Victim of credit crunch

Iceland could be the first global bankruptcy of the financial crisis. The island of just 320,000 people has one of the world’s highest per capita incomes. The banks are threatening to collapse in the aftermath of heavy lending that was done in better times. As the country struggles to stay afloat, most things are closed. The prime minister is warning people that national bankruptcy could be on the horizon.

Iceland’s currency lost just about half of it’s value. The government has nationalized the bank and it enacting new laws into being to try to save their country. The fate of Iceland has strong implications for the rest of Europe. The rest of Europe has large investments in Icelandic banks and companies. Bankruptcy for Iceland would spell trouble for a score of other nations.

Iceland’s largest companies have stake in several retailers around Europe. Baugar, an investment group has enough stake in British retailers to make it the largest private company in Britain. Iceland’s largest bank, Kaupthing had share trading stopped last week so that there would not be a huge sell off. The bank invested in some European retail groups.

Icesave, an online arm of Landsbanki, will probably file for bankruptcy. This is bad news for the thousands of Brotons that have accounts with Icesave. Customers can no long withdraw money from their accounts. The practice was stopped after Tuesday.

Iceland’s government loaned $680 million to Kaupthing to help with the unsteady environment. The country negotiated a $5.4 billion loan from Russia to help bulk up the nation’s financial situation.

The rate at which Iceland’s downfall came was shocking. Even though some forecasters said that Iceland might be the first to fall in the global crisis, the situation came about relatively fast. Just last year Iceland was named the best country to live in by the U.N. The residents in Iceland wee said to be the most content in the world. This has obviously changed.

Now the future is entirely uncertain for Iceland. The country saw a major decline in business across the board on Wednesday. The prime minister says that the disproportionate wealth, and associated debt, earned by just a few is to blame for the economic woes of the country. This explanation of course is no comfort for the residents of Iceland.

Iceland worked hard to transform its self from a poor country that relied on the fishing industry. In the 1990’s the domestic stock market creation opened up the door for new and exciting opportunities. Entrepreneurs became a major export of the country and the average family income grew 45 percent in half a decade. In a very short time Iceland became more than a place that exported fish.

Now with the economic climate going stale the country is in absolute turmoil. Only time will tell what will happen to the isolated Artic island. The hope is that the global economy will not get any worse. If it does we may see the first national bankruptcy of these global crisis.

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