As people across cash-strapped Greece wait to vote in a referendum on Sunday on whether to accept proposals made by creditors, what can be learned by examining similar economic crises in Iceland and Cyprus? In 2007, the Icelandic economy appeared healthy. Its real Gross Domestic Product (GDP) was 35% higher than it was in 2002, unemployment was 2.3% and government debt was a modest 27% of GDP. However, the assets of its three largest banks had grown to over nine times GDP, a size that made it impossible for the Icelandic central bank to act as an effective lender of last resort. Thus, regardless of the quality of the ... (full story)