The next Iceland

Foreign Policy has a sobering list of the next Icelands -- the next countries it is predicting that will face "economic ruin and political meltdown." Canada is not on that list. Neither is the US. However, of the five, a surprise for me is Great Britain, as it is one of the first world countries, and the prediction that it may follow Iceland to total collapse is evidence of just bad the financial crisis is.

The question in Britain is no longer when the economy will enter a recession, but when it will enter a depression, with many bracing for a slump that could rival the 1930s in severity. GDP fell 1.5 percent in the fourth quarter of 2008, and the European Union estimates it will contract another 2.8 percent in 2009. Unemployment is projected to balloon to more than 8 percent by year's end, and an estimated 23 percent of adult Britons currently consider their debt level "unmanageable."

The British downturn is especially severe because the U.K. is more dependent on its financial sector than most developed economies. All told, British banks currently hold about $4.4 trillion in foreign debt (which, until recently, included a large amount of Iceland's debt). For a $2.1 trillion economy, that's a heavy load to bear.

The other countries on the list are, Latvia, Greece, Ukraine, and Nicaragua. And where does Canada stand? I haven't been able to find any comprehensive reporting of 2008. The last reporting the government has online is for fiscal year 2007-2008. We're carrying a net debt of around $500 billion, for a $1.26 trillion economy -- so our debt-to-GDP ratio isn't scary -- though not where we want it to be either. This will probably increase as the government takes on more debt and output decreases in 2009 -- but still, we're not on the shaky ground that others are on.