GLOBE AND MAIL: Small countries are the biggest victims of the financial crisis, leaving many people looking to bigger nations for economic security
LONDON -- In the centre of Scotland this week, separatist leader Alex Salmond discovered that size has become a problem. He has pegged his political future to the idea of an "arc of prosperity" uniting small countries from Iceland to Ireland through Scotland to Scandinavia.
That sounded good two months ago, when those Celtic tigers and Icelandic miracles were the talk of the economic world and small countries were boasting about their big banks and independent currencies.
Suddenly, the "arc of prosperity" is being called an "arc of insolvency" as small countries have become the biggest victims of the financial crisis.
In the past few weeks, Iceland has gone bankrupt and is now being bailed out by the International Monetary Fund. Ireland is suffering Europe's first real recession and has slashed its government and raised taxes to keep its beleaguered banks afloat. Scandinavian countries are talking seriously for the first time of ditching their currencies, which have plummeted, in favour of joining the big, stable euro.
Across Europe, people are moving their savings and possibly their political support to the security of big countries, big governments, big political parties and big currencies.
Small countries from Lichtenstein to the Canary Islands are learning that being a tax-sheltered banking haven is a fleeting pleasure: When the going gets tough, as it is now, the bank accounts retreat to big, well-known countries. Fear of regulators shutting down the tax shelters - as French President Nicolas Sarkozy suggested to U.S. President George W. Bush last weekend - is pulling them away, but so is the fear of having money tied up in a country too small to save its own banks.
That, analysts say, is the problem: In a new era when government has become the guarantor of financial stability and the lender of first resort, nobody wants to touch those countries whose banks are bigger than their economies. >>> Doug Saunders | October 22, 2008
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