Statistics paint the remarkable fiscal challenge Iceland’s people face. The central bank estimates that about 40,000 of the country’s 100,000 households took out loans to buy automobiles denominated in foreign currencies, chiefly the Japanese yen and Swiss franc. Similarly, about 80,000 Icelandic households have mortgages—all of them with payments either directly linked to inflation or, like those car loans, denominated in foreign currencies. When the krona was soaring, taking out forex loans for new Land Cruisers and condos overlooking the harbor might have seemed rational.
From about 2002, the soaring currency—buoyed by artificially high official interest rates—allowed hot money to flow over Iceland like the Gulf Stream that keeps the country temperate. Everyone from American hedge fund managers to Austrian dentists found it easy to borrow cheaply at home, or in low-rate currencies like the yen, and buy higher-yielding Icelandic securities.
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Can Iceland Be Saved? | iceland today
2 years ago
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joe eckard
2 years ago
I think the problem is: You don’t want the krona to be worth nothing.
If Icelanders don’t pay the debts of the failed banks, unfair though that may be, then what will be the value of the krona? It is, after all, only paper.
And even if you join the EU, the EU is going to want something from you in exchange, maybe your fishing rights.
I don’t know what will happen to Iceland.