Iceland is first to the Great Depression II

While most of the world enters the Great Recession, Iceland has skipped directly to the Great Depression II:

Iceland, Mired in Debt, Blames Britain for Woes - NYTimes.com

... Iceland’s key interest rate now stands at 18 percent. The currency, the krona, has declined 44 percent in the last year. Mr. Danielsson, the economist, visited the country recently and found the situation grave.

“Salaries are frozen, food prices are shooting up and they are laying off people left, right and center,” he said. “Companies are going bankrupt all over the place. It’s unimaginable how bad it is.”

Ms. Gisladottir said Britain’s decision had sent Iceland back some 30 or 40 years, to a time when it was an isolated, poor country, dependent mostly on its fishing trade.

“This is a major crisis,” she said. “We haven’t been in this situation for, probably, ever. We cannot solve it alone. We need solidarity from partners, from friendly countries, and we thought the U.K. was one of them.”

Iceland's population is about 300,000, so keeping them from disaster shouldn't tax the IMF very much.

The story of Iceland's collapse has gotten some modest coverage over the past few weeks. My distant sense of the story was that Iceland had transformed itself along the lines of some of the Caribbean banking states, and that their neighbors weren't entirely delighted. I also recall that Iceland declined to join the EU a few years back, because they thought they'd do better with a freer economic hand.

So now the EU nations are inclined to let Iceland defrost. Maybe for another week or two.

Eventually the IMF will launch a rescue, and Iceland will be allowed to join the EU. They may be limited to conditional membership for a while.

I'm still expecting most of the world will stick with the Great Recession, and forego the Full Monty.