Here’s how fluid things are: last week, Iceland nationalized Glitnir, the country’s third-largest bank. Today, it unnationalized Glitnir, putting it into receivership instead: clearly the bank’s liabilities were too large for the Icelandic government to take on.
Yesterday, Iceland pegged its currency to the euro; today it unpegged the currency, saying "there is insufficient support for this exchange rate".
And all those promises about Iceland backstopping deposits at its banks?
"The Icelandic government, believe it or not, have told me yesterday they have no intention of honoring their obligations here," [British Chancellor Alistair] Darling told the British Broadcasting Corp.
In other words, pretty much the entire we’re-all-in-this-together plan that I lauded on Monday has unravelled by Wednesday.
And still Iceland looks in better shape than Pakistan, and we’re only at the very beginning of the global sovereign (as opposed to financial) crisis. There will be more government debt scares before this is all over.