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How does a place like Iceland rebuild?
Taken from the Mahalo page on Iceland:"Geir Haarde, the nation's prime minister, resigned and disbanded his government on January 25, 2009. "How do they (what is the process they must go through to) rebuild their nation, with a new government, and rebuild the economy? Does bankrupt mean everything is very cheap at the moment in Iceland?
answers (3)
Iceland is a relatively unprecedented situation here.
I can't think of a case in modern history where there has been a similar situation with regards to what is going on.
The failed banks in Iceland *dwarf* the size of the government - the country only has 300k people or so, and the banks are huge.
For example, Iceland now owes the IMF (and other countries including Russia) $10 billion...
That's 300,000 people. $33,333 PER PERSON. That's probably roughly equal to GDP. For comparison, the US Government debt is about 70=80% of GDP, if I remember correctly. And that's for one loan. Their economy was built on the backs of the big banks, and the massive debt from that is nearly insurmountable - the interest on borrowing $10B is something in the vicinity of how much growth the country would normally have, so, essentially, the country is so far in to debt that any economic gains they make are nullified by the amount of money being paid out.
And that's the tip of the iceberg. Because the financial issues will depress the economy, people will earn less money, pay less in taxes, and that will cause
IIRC, Iceland's current account deficit is around 12-16% or so. The US, under Bush, pushing record deficits, has been at something like 5-6% (It may hit 9-10% for a couple years under Obama - but that level of spending will be unsustainable in the long run). They had been able to do this because their economy was growing very quickly, which is what afforded their spending, but the floor just fell out from them.
The load of debt that Iceland, a developed nation, is now carrying is, relatively speaking, not unlike what happens with failing 3rd world countries. And while we can look at what has happened in those 3rd world countries as an example, it's really not going to mean very much in the scheme of what will happen to Iceland.
Here's some random speculation on my behlaf:
If Iceland were to join the EU, they'd be able to get help from the EU as a whole - and, believe it or not, Iceland isn't peanuts on a large scale because of the sizes of the businesses that are located there. But it's small enough that if it were to be a EU member, it'd be able to be assisted, and at least some of the debts could possibly be forgiven. The amount of debt they've taken on would then not be insurmountable, but would cripple short and medium term growth of the economy - odds are that taxes will need to be raised considerably and the quality of life there will get worse.
Are things in Iceland cheap? Quite the opposite. It's currently a lot harder for people to make ends meet. The currency is worth half what it was a few years ago, and while it's somewhat stable, inflation rates are very high by the standards of developed nations. If you're from the US and are at least 40 or so years old, you got to see similar inflation here. Things get expensive a lot faster than your rate of pay goes up.
If you were to talk to someone more informed than me, they could probably go on and on for hours. It's a morbidly fascinating subject. Note that I might have a few facts wrong here, most of my writing is from memory (though I did look up a couple of things). If you are interested in following this story more, I'd recommend you start reading the Economist, which is an awesome magazine based in the UK, and is easily the best news magazine on earth.
http://www.economist.com/world/europe/displayStory.cfm?story_id=13008397&source;=features_box_main
Check their home page on a regular basis and see what comes up - odds are that iceland will be featured quite frequently on their front page.
You also can't go wrong with the BBC -
http://news.bbc.co.uk/2/hi/europe/default.stm
I can't think of a case in modern history where there has been a similar situation with regards to what is going on.
The failed banks in Iceland *dwarf* the size of the government - the country only has 300k people or so, and the banks are huge.
For example, Iceland now owes the IMF (and other countries including Russia) $10 billion...
That's 300,000 people. $33,333 PER PERSON. That's probably roughly equal to GDP. For comparison, the US Government debt is about 70=80% of GDP, if I remember correctly. And that's for one loan. Their economy was built on the backs of the big banks, and the massive debt from that is nearly insurmountable - the interest on borrowing $10B is something in the vicinity of how much growth the country would normally have, so, essentially, the country is so far in to debt that any economic gains they make are nullified by the amount of money being paid out.
And that's the tip of the iceberg. Because the financial issues will depress the economy, people will earn less money, pay less in taxes, and that will cause
IIRC, Iceland's current account deficit is around 12-16% or so. The US, under Bush, pushing record deficits, has been at something like 5-6% (It may hit 9-10% for a couple years under Obama - but that level of spending will be unsustainable in the long run). They had been able to do this because their economy was growing very quickly, which is what afforded their spending, but the floor just fell out from them.
The load of debt that Iceland, a developed nation, is now carrying is, relatively speaking, not unlike what happens with failing 3rd world countries. And while we can look at what has happened in those 3rd world countries as an example, it's really not going to mean very much in the scheme of what will happen to Iceland.
Here's some random speculation on my behlaf:
If Iceland were to join the EU, they'd be able to get help from the EU as a whole - and, believe it or not, Iceland isn't peanuts on a large scale because of the sizes of the businesses that are located there. But it's small enough that if it were to be a EU member, it'd be able to be assisted, and at least some of the debts could possibly be forgiven. The amount of debt they've taken on would then not be insurmountable, but would cripple short and medium term growth of the economy - odds are that taxes will need to be raised considerably and the quality of life there will get worse.
Are things in Iceland cheap? Quite the opposite. It's currently a lot harder for people to make ends meet. The currency is worth half what it was a few years ago, and while it's somewhat stable, inflation rates are very high by the standards of developed nations. If you're from the US and are at least 40 or so years old, you got to see similar inflation here. Things get expensive a lot faster than your rate of pay goes up.
If you were to talk to someone more informed than me, they could probably go on and on for hours. It's a morbidly fascinating subject. Note that I might have a few facts wrong here, most of my writing is from memory (though I did look up a couple of things). If you are interested in following this story more, I'd recommend you start reading the Economist, which is an awesome magazine based in the UK, and is easily the best news magazine on earth.
http://www.economist.com/world/europe/displayStory.cfm?story_id=13008397&source;=features_box_main
Check their home page on a regular basis and see what comes up - odds are that iceland will be featured quite frequently on their front page.
You also can't go wrong with the BBC -
http://news.bbc.co.uk/2/hi/europe/default.stm
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There is really nothing to rebuild. Iceland is being affected by the global economic crisis like every other country. They will just have to weather the storm like the rest of the world until the global recession comes to an end.
Hide
Well to begin..
From the AP
http://www.google.com/hostednews/ap/article/ALeqM5iL8CXS1j8OViKzOvmiNzsL5VJNuQD95V3TTG0
--Quote--
On Tuesday, he's likely to ask Foreign Minister Ingibjorg Gisladottir, head of the Social Democratic Alliance, to govern with smaller opposition parties until new elections are held. Gisladottir said she wouldn't agree to take part in a national government composed of all five major political parties.
--/quote--
And then they will hold early elections in May and hopefully form a new government.
http://news.bbc.co.uk/2/hi/europe/7847317.stm
From the AP
http://www.google.com/hostednews/ap/article/ALeqM5iL8CXS1j8OViKzOvmiNzsL5VJNuQD95V3TTG0
--Quote--
On Tuesday, he's likely to ask Foreign Minister Ingibjorg Gisladottir, head of the Social Democratic Alliance, to govern with smaller opposition parties until new elections are held. Gisladottir said she wouldn't agree to take part in a national government composed of all five major political parties.
--/quote--
And then they will hold early elections in May and hopefully form a new government.
http://news.bbc.co.uk/2/hi/europe/7847317.stm
source(s):
http://www.reuters.com/article/gc06/idUSTRE50P55R20090126
http://www.google.com/hostednews/ap/article/ALeqM5iL8CXS1j8OViKzOvmiNzsL5VJ...
http://www.google.com/hostednews/ap/article/ALeqM5iL8CXS1j8OViKzOvmiNzsL5VJ...
http://www.reuters.com/article/gc06/idUSTRE50P55R20090126
http://www.google.com/hostednews/ap/article/ALeqM5iL8CXS1j8OViKzOvmiNzsL5VJ...
http://www.google.com/hostednews/ap/article/ALeqM5iL8CXS1j8OViKzOvmiNzsL5VJ...
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This is nowhere near what it might sound at first blush - as Iceland is a parliamentary system, elections and transfers of power are handled rather differently than in the US - it's not like the government there is not legitimate - it's just that a process is now beginning wherein new elected officials are chosen - albeit in a somewhat tumultuous manner, this is how the system is supposed to work.
I'm just noting this so there's no confusion over the terminology being used, and why I didn't talk about it in my initial response - while it will certainly affect what is going to happen down the road, the manner in which the government reorganizes itself isn't going to effect the crisis directly.