Problems in Iceland economy
- In lead up to 2008, the Icelandic economy ran a very large current account deficit, financed by financial flows into Icelandic banks.
- The large current account deficit and external debt, suggested the economy was living beyond means in era of tighter capital flows.
- The credit crunch of 2008 caused Icelandic banks to lose money and default.
- Collapse in Icelandic banks led to loss of confidence in Icelandic economy
- Withdrawal of money caused depreciation in currency.
- This depreciation caused inflation and necessity of higher interest rates
See more detail: Problems with Iceland economy
Rescue package to Iceland
- $2.1billion loan to Iceland. This represents 1,190 percent of Iceland’s quota.
The loan is part of a package aiming at:
- restoring confidence in financial sector.
- stabilising Icelandic krona.
- Stabilising Icelandic fiscal position