The last time I heard any news out of Iceland, it was when the Soviets landed troops at Keflavik… no, wait — that was in a Tom Clancy novel. But the credit crisis has hit that small island incredibly hard:
Home to just 320,000 people on a territory the size of Kentucky, Iceland has formidable international reach because of an outsized banking sector that set out with Viking confidence to conquer swaths of the British economy _ from fashion retailers to top soccer teams.
The strategy gave Icelanders one of the world’s highest per capita incomes. But now they are watching helplessly as their economy implodes _ their currency losing almost half its value, and their heavily exposed banks collapsing under the weight of debts incurred by lending in the boom times.
“Everything is closed. We couldn’t sell our stock or take money from the bank,” said Johann Sigurdsson as he left a branch of Landsbanki in downtown Reykjavik.
The government had earlier announced it had nationalized the bank under emergency laws enacted to deal with the crisis.
“We have been forced to take decisive action to save the country,” Prime Minister Geir H. Haarde said of those sweeping new powers that allow the government to take over companies, limit the authority of boards, and call shareholder meetings.
A full-blown collapse of Iceland’s financial system would send shock waves across Europe, given the heavy investment by Icelandic banks and companies across the continent.