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Overbanked and Undersized: Lessons from Iceland

In: Preludes to the Icelandic Financial Crisis

Author

Listed:
  • Anne C. Sibert

    (University of London and CEPR)

Abstract

In 2007/8, Iceland was the top-scoring country in the world in the United Nations Human Development Index and fifth in the world in terms of per capita income.2 In the aftermath of the collapse of its banking sector, Iceland has been forced to go to the IMF for a $2.1 billion loan; Icelandic GDP may contract by about 10 per cent in 2009 and private domestic consumption will probably fall by roughly 25 per cent. Icelandic government debt may now be about 150 per cent of GDP, or 200 per cent if the Icesave obligations are included.3 Based on CDS spreads, the market views Iceland as the world’s fifth-riskiest sovereign debtor: riskier than even Kazakhstan and Lithuania.4 In this chapter I revisit the reasons for this debacle and consider the lessons other countries, as well as Iceland, might draw from it.

Suggested Citation

  • Anne C. Sibert, 2011. "Overbanked and Undersized: Lessons from Iceland," Palgrave Macmillan Books, in: Robert Z. Aliber & Gylfi Zoega (ed.), Preludes to the Icelandic Financial Crisis, chapter 16, pages 329-340, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-30714-8_16
    DOI: 10.1057/9780230307148_16
    as

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