The Icelandic Economy

Ang asked me to fill you all in on the recent developments of the economy in iceland.

people here have been glued to the tv for the last few days as the prime minister of iceland has told of the governments plan to help the economy which took a dramatic turn in the last 2 months. this turn has been foretold by many for a long time now. when we arrived in iceland on August 27th, we would get 78 Kronurs(their currency) for every Canadian dollar. that doesn´t mean that things were cheap for us. in fact most everything is more expensive. if a chocolate bar in Canada is 1 dollar than in icealnd it would be more like 150 kronurs...you get the idea. anyhow, since we got here it has gone up a lot...still not so things are cheap for us :) but closer to normal prices.
today the kronur was 104 to 1 canadian dollar, and i´ve seen it has high as 109. that is up 30 -40%

the economy of the world has really affected this small country. for a long time the bank has been giving out loans to anyone who wanted them with zero down. people in their ´new found´wealth bought multiple cars, borrowed to invest, and bought houses that they couldn´t really afford. CRASH

i don´t know how it all works, but the government took over the 3rd largest icelandic bank last week, and over the last days has basically insured all deposits and loans DOMESTICALLY of the banks. there are 3 major banks in iceland, and their combined economy is 10-12 TIMES that of the whole country. the state could not insure all the banks debts(and shouldn´t have to) but they are doing their best to protect the citizens. this is crazy news in a highly developed independent nation of only 300,000 people who have enjoyed wealth and growth beyond measure over the last 15 years.

the governement of iceland tried to get financial support for britain and other nations that are friends, but received little to none, except support from the other Scandanavian nations which are not the large either. Maybe 20 million people total. The Prime Minister just said in a speech, that when you ask friends for help and they don´t, then you have to get new friends. they secured a loan from RUSSIA for 4 Billion Euros...about 5.8 billion Canadian or more.
here is an article about it.

http://biz.yahoo.com/ap/081007/eu_iceland_banks.html

the governement has taken over the 2nd largest bank now and has control of the 3rd. we´ll see what happens with the largest.

nobody is sure how this will affect everyone. less spending for sure for those who have loans. let extra vehicles. maybe houses will all go up for sale...but who is going to buy? so maybe most will just keep paying instead of being out of a house and have a loan...it´s better to just have a loan.
lots of immigrants have already left because they enjoyed the good economy and could send money home...now they don´t have any to send home. the sports teams that were paying players in other currencies have cancelled all the contracts and sent the players home.

i was told that they have tied the currency to the euro but i think that is only internally...so that if any icelander wants to BUY Euros, than they will always costs the same, although the currency will still fluctuate like any of them.

all this in the last month and a half that we have been here. that´s all for now. later

A.J.