Icing off the cake! Bailouts by neighbouring countries and IMF are failing to prop up the economy.

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Iceland's PM resigns on the back of global economic turmoil

Iceland's Prime Minister Geir Haarde has quit office following violent protests against his coalition’s policies that resulted in the collapse of the country’s currency and banking system. But Haarde said his coalition would stay around till the elections scheduled for early May 2009. Iceland's economic meltdown is so severe that Haarde’s Independence Party and its Social Democratic Alliance partners are unable to find even wiggle space. If it was not for the meltdown, Haarde and Ingibjorg Solrun Gisladottir, who heads the Alliance party, would have held on till 2011. Their two-thirds parliamentary majority would have ensured their blissful sojourn, but now, with things deteriorating steadily, the 57-year-old Haarde is the first world leader forced to exit due to the financial turmoil.

Haarde's popularity fell steeply in public ratings after Iceland’s deeply indebted economy fell apart in the midst of the global debt crisis. As the crown (Iceland's currency) fell, the government was left with just one option: to seize control of its three major banks. This crisis has been a tremendous let-down for 320,000 Icelanders, whose rising incomes and prosperity had left them quite unprepared for this. "What this essentially means is that this is a country without a government, so it's impossible to say what might happen next,” says Gunnar Kristinsson, Professor at Iceland University. It is anticipated that the economy will shrink by 9.6% in 2009, while unemployment will touch 7.8%.

Bailouts by neighbouring countries and IMF are failing to prop up the economy. The new PM Johanna Sigurdardottir is asking Central Bank governors to resign and is building consensus for a union with EU. As other options fail, this indeed seems to be the best way forward.

Amiya Jha


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Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist).


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