Iceland is experiencing the prelude to what looks like a very, very severe downturn. From tomorrow's editions of The Times of London:

The Icelandic Government seized control of the country’s biggest banks last night in an attempt to fend off wholesale economic collapse.

Turmoil at the banks, whose shares were suspended by the Government yesterday afternoon, had sparked panic in the tiny state, which has a population roughly the size of Coventry.

Queues formed at petrol stations as Icelanders rushed to fill up before reported fuel shortages, while savers who tried to withdraw money from banks or sell bank shares on the internet found websites were not working.

In a late-night sitting, parliament approved a Bill giving the Government wideranging powers over the banks, including the ability to seize their assets, force them to merge or compel them to sell off their overseas subsidiaries, many of which are in London.

Icelandic banks have lent hundreds of billions of pounds overseas and their position in the world’s financial system far outweighs the size of the country’s tiny economy, the GDP of which was only $20 billion last year.

The country’s banks have been under pressure for most of the year, struggling with rampant inflation, the collapsing value of the currency and the general fallout from an overheated economy.

In Reykjavik, the capital, confusion reigned among a public unsure whether their savings and investments were safe, even after the Government moved to guarantee deposits. The country’s state surgeon even warned politicians and the media to ensure that they did not alarm old people.