Crisis-hit Iceland said yesterday it needed another $4-billion (U.S.) in loans on top of the $2-billion it wants from the International Monetary Fund, and its Nordic cousins said they would see how they could help.
Iceland fell into crisis when its top three banks folded in the face of liquidity problems and high debts, and its currency crumbled. It expects a drop of 10 per cent in economic output next year, rising unemployment and worsening public finances.
Prime Minister Geir Haarde, in Helsinki for a Nordic Council summit, said this is why his small, north Atlantic nation needed further aid.
"We are talking about $4-billion from a number of sources," he said, mentioning Sweden, Norway, Denmark and Finland, as well as Japan, Russia, the European Central Bank and the U.S. Federal Reserve.
Iceland called on the IMF for $2-billion in aid on Friday, and the Washington-based lender said an agreement had been reached on an economic program that would be supported by the financial assistance.
Formal approval by the board of the IMF is expected soon.
Mr. Haarde also presented his case to other Nordic leaders and Swedish Prime Minister Fredrik Reinfeldt said the countries had agreed to look into the idea of aid.
"The Nordic prime ministers have said we will put together a working group to facilitate how the Nordic countries ..., linked to the IMF program, could take forward some kind of effort from the other Nordic countries," he told a news conference.
As well as the expected slide in gross domestic product next year, Mr. Haarde said the budget deficit would balloon to somewhere between 7 and 10 per cent of GDP compared to an original projection of 3.5 per cent.
The expected economic pain from the crisis has further persuaded some in Iceland that the country would be better off in the European Union and with the euro.
Icelandic Commerce Minister Bjorgvin Sigurdsson, also in Helsinki, said the country should renew its debate on whether to join the EU. His Social Democratic Party is the only major party backing EU entry.
"The times have changed and we will have to go through these [discussions]all over again in the light of these new consequences of the financial crisis and the weakness of the [Icelandic]krona," Mr. Sigurdsson said.
A poll in an Icelandic newspaper yesterday showed public support for entering the EU and adopting the euro at 70 per cent. In September, support for EU entry was 55 per cent, while backing for euro entry was at 44 per cent.