Iceland suspends trading in bank shares as financial crisis hits Scandinavia hard

Iceland's Financial Services Authority yesterday suspended all trading in the shares of all financial instruments issued by its major banks—Exista , Glitnir, Kaupthing, Landsbanki, Straumur-Burdaras and SPRON.

The move was made due to concerns that shares were massively overvalued and would collapse.

At a midnight press conference Sunday, Prime Minister Geir Haarde stated that the banks had collectively agreed to "sell their foreign assets and decrease their activity abroad" to facilitate a rescue plan by the government. There is talk of a merger between Kaupthing and Landsbanki and a requested loan from the European Central Bank.

After a weekend of frantic discussions between Iceland's business, political and trade union leaders Haarde also announced that the trade unions are to be asked to repatriate some of the funds in pension funds in an effort to shore up the krona. Reports indicate that the unions have also been asked to sign up to wage restraints, under conditions of 14 percent inflation.

The package came just days after the announcement that Glitnir, the country's third largest bank, was to be nationalised.

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The IMF has warned Sweden of the dangers of its investments in the Baltic, where both Estonia and Latvia are in recession. It stated that the problems in the Baltic could threaten to "cause a credit crunch in Sweden itself." It singled out Swedbank and SEB as particularly exposed.

Vast losses have also hit Finland. In the days following the collapse of Lehman brothers, shares on the OMX stock market in Helsinki fell rapidly, resulting in a loss of €14 billion in total investments. An estimated €2 billion in Finnish household wealth was wiped out.

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The Danish economy has contracted in the early part of 2008 and house prices are believed to have fallen by as much as 20 percent. The level of household debt in Denmark was pushed during the years of economic boom to a staggering 260 percent of GDP, the highest level anywhere in the world.