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.
Posted on November 19, 2008, in Bank Stocks, Global, Investments, Meltdown and tagged Bank Stocks, Economics, European Union, Financial Markets, Global, Monetary Policy, Obama, Obamanomics. Bookmark the permalink. Leave a comment.