Iceland offers a kind lesson that developing countries seem to enjoy learning every decade or so, and then leverages up that awfulness several orders of magnitude. A huge current account deficit and lots of foreign currency debt left it looking vulnerable to a rout for years. Meanwhile its top three globe-trotting banks managed to grow to 9 times GDP. With virtually no deposit base and a teeny-weeny government behind them, since Iceland has like 38 people, they of course failed when capital markets seized. The currency, the krona, collapsed. The government then eated the banks and the currency collapsed some more. The total cost of the bailout is estimated to be some 80% of GDP, ensuring Iceland will remain in debt at least until Jesus comes back, who will then put them all in debtors' prison.
Iceland will be the IMF's bitch for the foreseeable future. They predict a 10% contraction in GDP next year. IMF nerds are all over monetary policy and don't want anyone touching it. Some suggest adopting the euro, but Iceland isn't a member of the European Union and unilateral euroization has too many vowels. Faced with this, many (7) Icelanders have already sold their igloos and fled west to Greenland and on to the New World where they will establish new shitty banks.
You'd think this situation would gain some sympathy, but the fact is everyone hates Iceland and is going to sue them for losing their money investing in glaciers or whatever. Landsbanki, desperate to shore up capital, came up with Icesave, which offered high yield savings accounts to idiots in Europe, who, being idiots, gave them all their money. Britain is leading the charge to get their dumb money back. But...
A report in Morgunbladid, a national newspaper, claimed that relative to Iceland’s size, the debt to Icesave depositors is bigger than the reparations demanded of Germany by the Treaty of Versailles.So if we follow this analogy correctly, we should invade Iceland right now because they're all going to become Nazis.