The Banking and Strategy Initiative

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How likely is a sterling crisis or: is London really Reykjavik-on-Thames? FT.com | Willem Buiter’s Maverecon

With the pound sterling dropping like a stone against most other currencies and credit default swap rates on long-term UK sovereign debt beginning to edge up, this is a good time to revisit a suggestion I made earlier on a number of occasions (e.g. here, here and here), that there is a non-trivial risk of the UK becoming the next Iceland.

The risk of a triple crisis – a banking crisis, a currency crisis and a sovereign debt default crisis – is always there for countries that are afflicted with the inconsistent quartet identified by Anne Sibert and myself in our work on Iceland: (1) a small country with (2) a large internationally exposed banking sector, (3) a currency that is not a global reserve currency and (4) limited fiscal capacity.

via FT.com | Willem Buiter’s Maverecon

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This entry was posted on November 19, 2008 by in Global, Investments, Meltdown, Uncategorized and tagged , , , , .

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