BBC News runs a short but comprehensive analysis of why a small and wealthy country like Iceland has gone bankrupt. The argument about overexposure to foreign borrowers and speculators is familiar; what strikes me in this analysis is the realization that it is the big fish (call me big countries) which will survive the crisis and the small fish that will go bust:
In a crisis, such as the one we are experiencing now, the strength of a bank's balance sheet is of little consequence.
What matters is the explicit or implicit guarantee provided by the state to the banks to back up their assets and provide liquidity.
Therefore, the size of the state relative to the size of the banks becomes the crucial factor.
In case you didn't get it, the photo shows an agitated Icelandic volcano;) I confess I know nothing about the country to post a more appropriate photo-cum-metaphor.
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