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2008-2009 Economy Financial Crisis of Iceland

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Iceland is especially hard hit by the ongoing late 2000s recession, because of the fall of its banking system and a subsequent economic crisis. Before the crash of the three largest banks in Iceland, Glitnir, Landsbanki and Kaupthing, their combined debt exceeded approximately six times the nation's gross domestic product of €14 billion ($19 billion). In October 2008, the Icelandic parliament passed emergency legislation to minimize the impact of the financial crisis. The Financial Supervisoral Authority of Iceland used permission granted by the emergency legislation to take over the domestic operations of the three largest banks. Icelandic officials, including central bank governor Davíð Oddsson, stated that the state did not intend to take over any of the banks' foreign debts or assets. Instead, new banks were established around the domestic operations of the banks, and the old banks will be run into bankruptcy. The Icelandic economic crisis has been a matter of great concern in international media.

On 28 October, 2008, the Icelandic government raised interest rates to 18%, a move which was forced in part by the terms of acquiring a loan from the IMF. After the rate hike, trading on the Icelandic króna finally resumed on the open market, with valuation at around 250 ISK per Euro, less than one-third the value of the 1:70 exchange rate during most of 2008, and a significant drop from the 1:150 exchange ratio of the week before. Iceland has appealed to Nordic countries for an additional €4 billion in aid to avert the continuing crisis.

On 26 January, 2009, the coalition government collapsed due to the public dissent over the handling of the financial crisis. A new left-wing government was formed a week later and immediately set about removing Central Bank governor Davíð Oddsson and his aides from the bank through changes in law. Oddsson was removed on 26 February, 2009.

Source: Wikipedia Encyclopedia

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