The default by Iceland – the country rather than the food store – could be a sign of a coming world war. That is the serious conclusion of an opinion piece in the Washington Post by two eminent economists.
Peter Boone and Simon Johnson argue that the conflict over Iceland’s default could signal a broader breakdown in international economic cooperation. In Britain alone 300,000 account holders could lose access to their funds and may face problems claiming deposit insurance. This is bad enough but it could, argue the authors, be the start of an “every country for itself” approach to economic affairs.
The authors put forward several suggestions to reduce the chances of such a breakdown happening. These include the world’s largest developed economies announcing plans to recapitalise their banks, a temporary blanket guarantee on all existing bank deposits and debts, lower interest rates and a substantial fiscal expansion.