It could be seen months ago and now it finally is getting scary, the Icelandic krona is dropping rapidly. The Icelandic prime minister had a speech to the nation today and talked a lot but didn’t say too much, I gather. Apparently the government is not to rescue more than Glitnir bank, which happened last week. It seems that if you swim with the sharks (like the Icelandic banks did), you shouldn’t complain if you get bitten.
See for yourself: ECB reference rate for ISK/EUR. Let’s see how this develops.
Update #1: The prime minister also said that the state is going to take over home loans from the banks. This results in two things: 1.) the state is going to get a lot of homes that no one can afford to buy (back) if the system breaks down, and 2.) the state is giving guarantees which may exceed its gross national product by far. Those home loans had been financed by the banks through short term credits. Apart from that, many Icelanders have taken loans in foreign currencies. If you mind to have a look at the development of the currency rate, you’ll find that it is well possible to have had a loan of X ISK in EUR, pay it off for some time and now owing still 2*X ISK to the bank.
// Oliver