Local banks, accumulated debt during years of rapid expansion, and now owe about six times the country's annual GDP. Money from all over the world flocked into Icelandic banks chasing interest rates of over 10%.
Iceland enjoyed all the benefits of being of the world´s most prosperous countries until 2007. By 2008 the signs of an impending meltdown were conspicuous. The crisis intensified in the last few days, leading the Government to resign. Iceland’s banks were highly over leveraged and deep in debt, after massive expansion abroad, in particular in the UK.
It is stunning to see a first world country collapse so swiftly!
But this may be just the start of something bigger. Inside the Eurozone, particularly in the peripheral countries, several economies suffer from chronic imbalances, usually blamed on lack of structural reform and debt from excessive state spending.
|Detail of 1000 Icelandic Kronur bank note|