Credit Crisis Abroad: Iceland heading for bankruptcy
Today's Financial News - Posted October 8, 2008
It may be a nice place to live, as long as you don’t mind the cold… or the dark, but Iceland could be the first country to declare bankrupcy in the credit crisis. Will the country previously said to have the “highest standard of living in the world” collapse under the weight of its own debt? And what does that mean for those investing in the country? David Stevenson of the UK’s MoneyWeek answered these questions and more in a recent article.
by David Stevenson, MoneyWeek
Baltimore — (TFN): Plenty of companies have failed in the global credit crisis. As yet, no country has joined them – yet. But that could be about to change. And it could be bad news for British savers.
The 313,000-strong population of Iceland has been called the happiest in the world. At the top of the UN’s league table comparing relative living standards, Icelanders recently came out on top. Health care and education are free, inhabitants have amongst the highest life expectancy on the planet – and they own the most mobile telephones per head.
The trouble is, all this has come at a huge cost. The country’s banks have been running up debts like there’s no tomorrow. The combined size of Icelandic banks’ balance sheets has ballooned to more than 11 times the country’s GDP of $14bn. Iceland has in effect become “the world’s first sovereign hedge fund”, as Damian Reece puts it in The Telegraph.
That’s great when prices are rising and all that leverage – basically, borrowed money – is paying off. However, when the reverse happens, it’s a nightmare. Property and stock values may collapse but those debts still have to be serviced somehow. Read on to learn more.
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