Economy topples Reykjavik

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MOSCOW. (RIA Novosti political commentator Andrei Fedyashin)

The entire Icelandic government has become the first victim of the crisis in Europe.

In late January, ministers and financial officials began to step down one by one, then the government coalition collapsed, and in the late hours of January 27, Prime Minister Geir Haarde said he and his cabinet would retire immediately. Early elections may be scheduled for February or March instead of 2011.

Judging by the tumult of mass rejoicing in the streets of the capital at this dramatic turn of events, the overwhelming majority of Icelanders are convinced that things could not get any worse. Almost the whole week before this, tens of thousands of people were demanding the government's resignation and early elections. As many as 30,000-32,000 people, or 10% of Iceland's entire population (320,000), took part in the political unrest burning effigies of the prime minister and his cabinet members.

What happened in Iceland was the quintessence of the most disgusting manifestation of the artificially triggered global financial crisis. The government did absolutely nothing to prevent the state's intentional, insane conversion into one mega unregulated hedge fund. Business seemed so successful that Iceland's banks issued securities and took out loans for almost $120 billion, six times more than the country's entire GDP. This was the most obvious sign that the bubble would soon burst but nobody foresaw the danger. It eventually burst last year, and the krona immediately fell in value by a quarter.

Within a few days, Iceland turned to a bankrupt. Nobody wanted to give money to Reykjavik because of its reputation as a financial pariah, and it had to turn to Russia and the IMF for help. The latter gave it $10 billion by the middle of January. The Viking brothers also helped. Denmark, Norway, Finland, and Sweden came up with a loan for $2.5 billion but this did not last long.

It is hard to say what country will follow Iceland but some may. In the Baltics, the wave of protests swept Latvia, Lithuania, and Estonia. This is only the beginning. In Eastern Europe, Hungary is suffering from a financial hangover, and the opposition is craving blood. The situation in Hungary is not much better than in Iceland.

Having finished the past year with the GDP's second consecutive quarterly fall, Britain has officially embarked on a recession with all its implicit political problems.

In Europe, only Chancellor Angela Merkel can hope to avoid the negative political consequences of the crisis. The next elections are scheduled for September 27. Circumspect Teutonic mentality has always prompted Germans to avoid serious moves during a crisis. So, Merkel is most likely to be re-elected.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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