Iceland’s economy: A minnow recovers

Posted: June 8, 2015 in economy
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“THANK you all, you have done a good job”. The Icelandic finance minister, the rather dashing Bjarni Benediktsson, is proud of his country. Today, his government revealed its plans to remove the capital controls that it had imposed when it went the Nordic country went into economic meltdown in 2008. For a country that the International Monetary Fund sees as having suffered the biggest banking failure in history relative to the size of an economy, this is big news.Iceland was the first country to be hit by the financial crisis—and it was hit hard. Small wonder: it had a massive exposure to the volatile world of global finance. By 2008, the combined assets of its three biggest banks—Glitnir, Kaupthing and Landsbanki—were 14 times larger than Iceland’s entire GDP. By way of comparison, when Lehman Brothers collapsed its assets were only worth about 5% of American GDP.These three banks had lent excessively and recklessly. But only about one-fifth of their loans were in Icelandic kronur, since interest rates on these were punitively high. Ordinary citizens instead borrowed from their banks in cheaper currencies such as Swiss francs to buy their homes and cars.&nbsp;That proved to be a big problem when the banks failed: when the kronur slumped, foreign-currency debts became much harder to service. &nbsp;These days, though, Iceland's economy is looking much stronger. It grew by 2% …<div class="og_rss_groups"></div>

via Economic Crisis


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