In a piece on the economic crisis in Iceland in this week’s magazine I noted how the government’s inept response to the troubles made a bad situation much, much worse. One of the obvious mistakes the Icelandic central bank made was to lower the interest rate from 15.5 percent to 12 percent, after all the damage had been done. Well, the central bank has now raised the interest rate–to 18 percent. This was done to secure a $2 billion emergency loan from the IMF. The interest rate in Iceland went from 15.5 to 12 to 18 percent in the span of two weeks. This does not inspire confidence in the krona, and every scenario for recovery in Iceland depends upon the krona being traded at a “reasonable” rate of something like 150 krona to the euro.
