Iceland Braces for Bankruptcy, Asks Russia for Bailout

Long considered a first-rate nation in terms of literacy, income, and longevity, Iceland is now the first country facing "national bankruptcy." The Kentucky-sized island nation of 300,000 has fallen though the financial ice and has asked Russia for a lifeline. More from the NYT:

"Iceland’s banks had propelled years of significant growth, lending so freely that their assets ballooned to many times the size of the country’s economy. But now the boom has turned to a bust.

In an effort to avoid financial collapse, the government took control on Tuesday of the country’s second-largest bank — its second takeover in two weeks, The New York Times’s Eric Pfanner and Julia Werdigier reported. And, in a measure more characteristic of troubled developing economies than one of the wealthiest in the world, Iceland’s central bank pegged the currency to a basket of others.

Most surprising, the government announced that it had asked Russia for a loan of 4 billion euros, about $5.5 billion, to try to keep the economy afloat.

...The boom in the financial sector was a relatively recent phenomenon. The Iceland Stock Exchange was created only in 1985; trading in shares began several years later. Though Iceland has one of the highest per capita incomes in the world, not long ago its economy was rooted in basic industries like fishing.

To stanch the current crisis, the government said it had secured the backing for a loan from Moscow. But Russian officials told Interfax that no decision had been made. Iceland later acknowledged that its announcement had been premature."

The Moscow Times has much more on the bailout request. Though Iceland had staunchly sided with the U.S. during the Cold War, Icelandic Prime Minister Geir Haarde said Tuesday that "one has to look for new friends" in crises such as this. Stratfor has a must-read about Haarde's bitter pill to swallow.

(Map: U.S. State Department)