Today was a black Monday for Iceland. The market crashed today and Iceland halted trading in the shares of six of its major banks and put 100 percent guarantees on savers’ deposits. Investors are now punishing the whole country for the banking sector’s heavy exposure – its currency has gone through the floor, imports have fallen and inflation is soaring.
But since we live in a globalized world, this will not be only an Icelandic problem. Most of Europe will have ramifications given the heavy investment by Icelandic banks and companies across the continent. More or less all banks in Sweden are part-owned by Icelanders (especially by two Icelandic brothers whos names I cannot come up with right now) and Baugur, the investment company, is the biggest company in all of Britain.
Part of problem is that Iceland’s tiny size has led to a high level of cross ownership of assets between banks and companies, which creates a house of cards scenario.