Are the dominoes getting bigger. First it was Northern Rock, and at around the same time, German bank IKB; more recently, Bear Stearns; who will be next? How about this one: Iceland.
Iceland has been suffering under a massive deficit on its current account, inflation has been soaring – a recent estimate from Bloomberg put it at 8.4 per cent this month, and its currency, the krona, has been tumbling.
Some have been warning that the nation’s banks might be in trouble too, so that is bad news all around.
Then yesterday, Iceland’s central bank upped the interest rate by 1.25 per cent to a crippling 15 per cent.
”It will be necessary to continue to pursue a very tight monetary policy in order to bring inflation and inflation expectations under control, and increase confidence in the krona,” read a statement from the bank.
Last year, Iceland’s current account deficit stood at a worrying 15.6 per cent of GDP, putting the deficits of the US, UK and Spain in the shade.
In recent years, Iceland has been characterised by many of its business leaders borrowing huge sums abroad and buying up businesses across the globe. The most spectacular example is Baugur. With shares in, amongst others, Debenhams, Karen Millen and House of Fraser, the Icelandic company owns a big chunk of the UK’s High Street, and has recently been expanding into the US too.
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