Iceland's financial problems are a result of a non-viable business model, finds a new paper by Willem Buiter and Anne Sibert from the Centre for Economic Policy Research (CEPR).

The authors find that, based on their research conducted for the Central Bank of Iceland in spring 2008, Iceland was vulnerable to financial problems as it is a small country with:

a relatively large banking sector;

an internationally exposed banking sector;

its own currency; and

limited fiscal spare capacity to deal