Could Iceland Face Bankruptcy? Casualty of global financial crisis

Iceland the tiny Island home to just 304,000 people and has now become the biggest victim of the global financial crisis.

Kaupthing, Iceland’s largest bank was taken for government control on October 9. Kaupthing will not trade on the Reykjavik stock exchange until October 13.

Lansbanki, Iceland’s second largest bank was seized by the Icelandic government on Monday and now re-named “New Landsbanki” controlled fully by the government as Iceland’s banking system crumbled, the authorities swept in using emergency powers to cream off the domestic assets. The Icelandic people left in a state of shock to what has happened to their beautiful Island in just one week, coming to terms with the fact that the majority of Iceland’s banking sector has been nationalised.

Then the third shock came with Icelandic bank Glitni Kaupthing was forced to take an emergency $702 million loan from Sweden to help the banks Swedish arm, while Norwegian Banks Guarantee Fund offered $819 million in liquidity support to the local unit of Glitnir.

It’s hard to believe that a country that was one of the poorest countries in Europe in less than a generation managed to transform itself into one the richest could now face bankruptcy. Geir Harrde Prime Minister of Iceland said: “There is a very real danger, fellow citizens, that the Icelandic economy in the worst case could be sucked into the whirlpool, and the result could be national bankruptcy.”
The Russian government has said they may lend Iceland $5.5 billion.

Source: Businessweek