Iceland's Economy, In The Hour Of The Wolf



(image via macdirectory)

At the turn of the millennium, when The Corsair was editing MacDirectory magazine, Iceland was a digital utopia. The homogeneous population of 300,000, high literacy rates and relative prosperity (and minimal defense expenditures, thank you Uncle Sam and NATO) made it an ideal, safe place for a tech boom. Cell phone penetration at the time was astonishingly high, and sociologists far and wide were studying Icelandic teenage cell phone use as a glimpse into the wireless future.

Things change. The grim economy has hit Iceland perhaps hardest. From Bloomberg:

"Iceland sought a 4 billion-euro ($5.43 billion) loan from Russia, pegged the slumping krona to a basket of currencies and took control of its second-biggest bank to stem a collapse of the financial system.

"Central bank Governor David Oddsson said an announcement earlier today in Reykjavik that the Russian loan had been agreed was incorrect and talks were 'ongoing.' Russian Finance Minister Alexei Kudrin confirmed that 'we have a request from the Icelandic government' and said Russia's reaction is 'positive.'

"The global credit crunch has crippled Iceland's biggest banks, which have racked up foreign debts equivalent to as much as 12 times the size of the economy. The nation's current account gap swelled to the equivalent of 34 percent of gross domestic product in the second quarter, mainly because of the cost of debt payments.

"'The commercial bank model there has failed,' said Sunil Kapadia, an economist at UBS Ltd. in London. 'For such a leveraged economy as Iceland, it was clear this was going to happen, but the pace has been surprising.'"

And of course there is the whole Russian Bear swooping in on the Icelandic wolf metaphor that may or may not play itself out here as well. Update: Russia approved the loan. More here.