It is one of the great ironies of the current global financial turmoil that a country, Iceland, which has built its wealth on strict capitalist principles has had to turn to a country, Russia, which until recent times was the arch-enemy of capitalism, to bail it out.
The banking crisis in Iceland is now so bad that the country itself is heading towards bankruptcy and after being snubbed by its Nordic neighbours, had to borrow from Russia to strengthen its foreign exchange reserves.
The plight of Iceland will have been noted by many European countries as governments wrestle with the best way to react to the financial melt-down of this week. Ireland was criticised by its EU partners for guaranteeing all deposits in its major banks but then Germany did exactly the same, proving that needs must when the economy comes under threat.
The British Government this morning unveiled its plan to help stabilise the banking system by in
jecting taxpayers money into the banks and setting up a contingency fund.
Both measures are aimed at ensuring that the banks have enough money for their day-to-day operations and to restore confidence in the financial sector which has taken a buffeting on the money markets.
The continued downward spiral in the financial markets has taken most governments by surprise and predictions even a week ago that they had reached their lowest point now seem wildly optimistic. This is a full blown crisis and it will take
concerted government action to restore confidence, not least among the public. They will accept taxpayers money being used to shore up the banking system, but only if there is a realistic chance of the money being repaid with interest. The public also expects greater government regulation of the banking system in future when normality is restored.
The effects of the financial turmoil are now beginning to feed down to a level that the public can understand. With banks reluctant to lend and consumers being cautious with the spending,
many sectors of the economy are feeling a very severe pinch. The construction industry, as a result of the implosion in house prices, has shed 2,000 jobs and builders are hoping that public sector contracts can stave off further job losses and restore stability to the industry. However, the public sector is also undergoing its own cost cutting and accelerating infrastructure contracts is not in its current business plan.
Another sign of impending recession is the slump in new car sales, down 30% in the last year, a drop 9% higher than the UK average.
Now Irish airline, Aer Lingus, is having to shed 1,500 jobs in a bid to save nearly £58m. The good news is that the job losses will not affect the newly created Belfast hub, but for those hoping to flee the desperate weather and the equally miserable economic conditions, it seems that there may even be difficulty getting an escape flight.
The problem is of such a scale that there may be nowhere to run in any case.