Iceland Headed For Another Crash - The Reykjavik Grapevine

Iceland Headed For Another Crash

Published August 13, 2013

Iceland’s economy is a ticking bomb for Europe and when its dubious recovery will be unmasked in the next few months, the consequences for the rest of Europe will be severe.

This is what financial journalist, Cyrus Sanati, states in his newest report on the online edition of business magazine Fortune. Sanati predicts another meltdown in Iceland soon, because the measures carried out to save the economy after the 2008 crash will only hold temporarily.

“Since 2008, the small island nation has been able to avoid an all-out economic meltdown thanks largely to government-imposed capital controls that have kept its currency from imploding. At the same time, the nation’s zombie banks have managed to avoid total collapse thanks to delay tactics that have allowed them to avoid settling with their creditors.

But the walls the government and its banks erected to shield its population from the outside elements have finally started to crumble. Unfortunately, there is not much Iceland can do to save itself at this point; it will need to face the music eventually. The bigger concern is what impact another Icelandic currency crisis could have on Europe in the months ahead.”

Sanati likens the Icelandic banks to those in Spain and fears what will happen when the government imposed capital controls will be lifted.

“Iceland’s banks are expected to force losses of around to 75% to 100% on their investors and large depositors, many of which are hedge funds that also buy and sell sovereign debt and the insurance linked to it. How these hedge funds will retaliate could be replicated in Italy or in France where sovereign debt continues to mount relative to the size of their economies.”


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