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Old 06.10.2008, 22:23
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Re: How Safe is UBS

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Meanwhile it appears Iceland is on the verge of bankruptcy. Europe is a farce.

Could you please explain this statement?
With a population smaller than Zurich, Iceland is very small and doesnít produce much. It has huge external debt and it relies heavily on imports. But despite its size, it has its own currency which has collapsed 30% against the $ which means servicing the debt and imports are much more expensive. This inflationary impact (now in double digits) means the kroner buys less as time goes on. This includes foreign currencies to pay your debts so in kroner terms the cost of servicing foreign loans goes up and up. The Icelandic economy is debt laden and credit lines to its banks are now cut. When a country starts leaning on banks and companies with overseas assets denominated in foreign currencies to sell those assets and buy kroner to bring home to defend the currency then things are pretty dire and the government doesnít have enough in the kitty to defend its currency. For precedents see Latin America. But here is what Icelandís prime minister said "The danger is for real, dear citizens. Icelandic society could be swallowed by the tides along with the banks. It could result in national bankruptcy," Mr Haarde said. I remember the Korean economic crisis when the country threw itself on the mercy of the IMF. There were stories of patriotic Koreans pulling the gold out of their teeth to save the country
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