Tuesday, May 17, 2011

Random News Generator- Iceland

You may recall that, a few years ago, Iceland's economy went off a cliff. Granted, so did everybody else's. But Iceland stood out for the severity of their downfall.

The good news for Iceland today is that Standard and Poor's has today removed Iceland from their negative credit watch. This was done on the heels of measures taken to encourage- or force- money to remain in the country; Icelandic citizens are less able to invest overseas than they were at the start of the crisis, and non-Icelandic people are less able to exchange Icelandic krona for some other currency.

The bad news is that even after openly becoming a money vacuum, Iceland's financial state is still fragile. In the eyes of Standard and Poor's, Iceland is very nearly a junk investment, a designation Fitch has already assigned. Their situation remains fragile. A program with the IMF expires this year, and voters last month rejected a repayment plan concerning online bank Icesave, a move that very nearly caused S&P to downgrade Iceland to junk.

When Icesave's parent company, Landsbanki Islands, collapsed in 2008, investors in the United Kingdom and the Netherlands moved to repay depositors for their losses. The referendum was on whether to pay those investors 4 billion Euros, plus interest, as compensation. By a 60-40 margin, voters killed the repayment, sending the matter to the European Free Trade Association.

Fitch's junk rating, they warned, could be in place as long as those restrictions on investing outside of Iceland remain in effect. The Icelandic government has made their own warning that those restrictions could be in place until 2015.

For more on just what in blazes happened in Iceland, a new book is out, Deep Freeze: Iceland's Economic Collapse by Philipp Bagus and David Howden. It's available free on Kindle or iBook.

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