Shares fell around the world again today as one country battled for economic survival.
In Iceland, the government introduced emergency legislation giving it sweeping new powers over the collapsing financial sector.
This followed a day of panic yesterday that saw trading in shares of major banks suspended and the Icelandic krona fall by a quarter against the euro.
Prime minister Geir Haarde warned late last night that the heavy exposure of the tiny country’s banking sector to the global financial turmoil was raising the spectre of “national bankruptcy”.
Mr Haarde said in a televised address to the nation: “There is a very real danger, fellow citizens, that the Icelandic economy, in the worst case, could be sucked with the banks into the whirlpool and the result could be national bankruptcy.”
The new laws will give the Central Bank of Iceland and the Icelandic Financial Supervisory Authority detailed and vast authority to intervene in the control and operation of Icelandic financial institutions.
A collapse of the Icelandic financial system could have repercussions across Europe given the heavy investment by Icelandic banks and companies across the continent.
One of the country’s biggest companies, retailing investment group Baugur, now owns or has stakes in dozens of major European retailers – enough to make it the largest private company in Britain, where it owns a handful of well-known stores such as the toy store Hamley’s.
The Icelandic government also put 100% guarantees on savers’ deposits, following in the footsteps of Ireland, Germany, Austria, Greece and Denmark.
Today Ireland’s finance minister said the European Union was thinking of increasing and standardising government guarantees for private savings in banks across the 27-nation bloc.
Brian Lenihan said savings of up to €100,000 could be guaranteed by EU governments.
In Russia, trading was suspended on Moscow’s stock exchanges today – a day after they suffered their biggest-ever one-day losses.
The opening of trading was delayed until at least 1pm (9am Irish team), two and a half hours after the usual opening.
The indexes of both the RTS and the MICEX exchanges dropped nearly 20% yesterday, the steepest declines yet for a market that was booming even amid growing signs of trouble in Western economies.
Since May, the RTS index – widely considered the Russian market’s benchmark - has plunged 64%.
In Japan, shares dropped to their lowest level in almost five years amid growing fears over the widening financial crisis.
The benchmark Nikkei 225 index lost 317.90 points, or 3.03%, to close at 10,155.90 today – its lowest finish since December 2003.
At one point the index tumbled more than 5% to 9,916.21 in the morning session, dropping below the psychologically key 10,000 level for the first time in almost five years. It recovered later in the day.
The broader Topix index also lost 2.15% to 977.61 today.
Car-makers were among the biggest losers.
In Australia, the central bank cut its official interest rate by a bigger-than-expected one percentage point to ease credit concerns.
Today’s cut to 6% is the largest by the Reserve Bank of Australia since May 1992. Analysts had expected the bank to drop the rate by half a percentage point.
Australian stocks climbed into positive territory after opening sharply lower. Other Asian markets gained after the move as well.
In China, shares fell again as worries about slowing economic growth hit energy and industrial metals, while expectations of a rate cut boosted property stocks and lower oil prices helped airlines.
The benchmark Shanghai Composite Index shed 0.73%, or 15.9 points, to close at 2157.84 today.
The Shenzhen Composite Index for China’s smaller second market dropped 0.81% to close at 586.11.
In Taiwan, the prime minister said the island is doubling the amount of insurance it offers on bank accounts as it seeks to bolster consumer confidence.
Liu Chao-shiuan assured the public today that they can now get up to three million New Taiwan dollars (€67,000) from their deposits in case of bank collapse. The previous limit was 1.5 million New Taiwan dollars.
Many Taiwanese have withdrawn deposits from private banks and put them in the state-run Bank of Taiwan.
Taiwanese banks have denied rumours they are facing credit problems. But some analysts say that many have suffered from massive bad debts stemming from over-leveraged credit cards, and may not be able to weather the current crisis.