There because Prime Minister Haarde resigned due to cancer.

There is a
realm of causes that inflicted the financial crisis in Iceland .

Deregulation of the banking
sector : the three largest commercial banks, Glintir , Landisbanki and
Kaupthing had total assets of more than $ 168 billion , or 14 times Iceland’s
GDP , wich means the central bank inevitably fails as the lender of the last
resort . they lured deposits from the Netherlands and
the United Kingdom by offering 15% interest rate . They could offer these rates
because the value of Iceland’s currency, the krona, was high. It had become a
major trading currency. The banks used $100 billion in deposits to
invest in foreign companies, real estate and even soccer teams. That amount
dwarfed Iceland’s 2008 GDP of $14 billion.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now


Government Collapsed : Iceland’s nearly bankrupt economy
caused the government to collapse in January 2009. The failure occurred because
Prime Minister Haarde resigned due to cancer. The minority party insisted
that one of its members fill the position. Haarde asked that Gialadottir take
the post. Commerce Secretary Bjorgvin Sigurdsson resigned due to
bankruptcy-related stress .Protesters took to the streets in response to
soaring unemployment and rising prices caused by the bankruptcy.
The government was forced to nationalise all three of Iceland’s
leading banks and to seek loans from the International Monetary Fund and other
countries worth more than $10 billion (£6.5 billion). Meanwhile, the value of
the national currency, the Krona, fell sharply, placing an immense burden on
people who had taken out loans in euros or dollars. Iceland, with only 310,000
people, has stayed out of the European Union and jealously guarded its national




market : six companies trading a shares was suspended on 6 Octobers , by the
government all tranding on the exchanges was frozen for two days . The decision
was made to unusual market conditions , with share prices fallen by 30% . On 14
octobers this impact in the market , the three large banks which form 73.2% ,
had been set at zero , the values of other equities decreased from 8% to -15% .







Converter USD/ISK

1.00 USD

US Dollar


104.0464 ISK

Iceland Krona


1.00 ISK

Iceland Krona


0.009611 USD

US Dollar






Induced effects of the crisis :

High unemployment rate : The current economic climate
in the country has affected many Icelandic businesses with the creation of Nyi
Landsbanki ( the new organization )  300
employees will lose their jobs  similar
losses are emersion at Glitnir amd Kaupthing due to a radical restructuring of
the organization .


The private sector will affected by the crisis : the
national airline icelandair has noticed a slump in domestic demand for flights


Inflation : the assets of Icelandic pension funds are expected by 15-25
% ,  iceland’s GDP is expected by
economists to shrink by as 10% as a result of the crisis , putting this
situation in an economic depression , inflation has high as 75% by the end of
the year . iceland had raised its rates to 15% by raising its repo by a 1.25%
in one day , the country was facing an inflation rate about 7% . In Iceland, the most important category in the consumer price
index is Housing and Utilities (29.3% of total weight). Transport accounts for
14.9% ; Food and Non-Alcoholic Beverages for 14.7% ; Recreation and Culture for
10.3% ; Miscellaneous Goods and Services for 6.2% . Furniture, Household Goods
and Maintenance; Health; Clothing and Footwear; Alcoholic beverages and
Tobacco; Communication and Education account for the remaining 19.2% of total

   Increase in liabilities : the 400 euro million loan
from the central bank of Denmark and Norway is capable to pay for a month’s
import.  Iceland external debt was 9.553
trillion Icelandic kronur ( 50 euro billion ) more than GDP of Iceland by 7x .


Depreciation in currency : the national currency fell
sharply in value , foreign currency transactions were virtually suspended for
weeks , the Icelandic stock exchange fell by more than 90% .  The Icelandic currency , krona has declined
against the euro ,  ISK 100 / EURO .The central bank of Iceland attempt to peg krona at 131 to the euro after
it had tried to set this peg , during the duration korna was ISK 340/ EURO . In  this case the central bank set
up a temporary system of daily currency exchange to facilitate international
trade the value of krona base on a floting system ( changes based on supply and
demand )  after this policy ISK 150 /
EURO was trading as exchange rate .  

Bad  reBadF.F.  Bad reputation : Icelanders don’t trust the government
much anymore, nor do they trust the banks that they must certainly rely upon,
no matter what their opinion of them is. They are still digging themselves out
of the debt hole that they created for themselves, and no one, not even the IMF
or their Scandinavian neighbors will help them. They are doing it all alone. At
least they have a sense of humor.




outside Iceland :

Over £840 million in cash from more than 100 UK
local authorities was invested in Icelandic banks. Representatives from each
council met to try to persuade the Treasury
to secure the money in the same way that customers money in Icesave was fully
guaranteed Of all the local authorities, Kent County Council has the most money invested
in Icelandic banks, currently £50 million .Transport for London, the organisation that
operates and coordinates transport services within London, also has a large
investment at £40 million Local authorities were working under government
advice to invest their money across many national and international banks as a
way of spreading risk. Other UK organisations said to have invested heavily
include police services and fire authorities and even the Audit Commission. It is hoped
that about one-third of the deposited money will be available fairly rapidly,
corresponding to the liquid assets of the UK subsidiaries: liquidation of other
assets, such as loans and offices, will take longer.