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I was looking at our blog’s stats and found a very strange search engine query that led to our blog – what does bankrupt country do. I read it, re-read it! Still clueless, I recollected a news item on TV that talked about Iceland’s financial crisis. The country fears it may go bankrupt.

Now, how would a country go bankrupt? The answer lies in an earlier post by Sankar. The banks of the country have assets (read liabilities under the current situation) that are 9 times in value to the country’s annual GDP of 16 billion euros. The Prime Minister of Iceland, Geir Haarde, in an address to the nation said that if these banks collapsed, the entire nation shall go bankrupt. The banks are not getting financial help from other international banks due to the development of a complete lack of confidence in business between the banks.

However, Russia has come to the rescue of the country with a 4 billion euro state loan to Iceland, this inspite its own banks ailing. Even a Swedish bank has provided a loan to a top Icelandic bank. The situation is still critical and Icelandic economy is still under a lot of pressure.

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