On 8 Nov. we reported on the migrant and housing problems Europe is facing now, today then, organizers announced a demonstration to occur on 15 Nov. in Reykjavik, Iceland.

While there is little chance of violence during the protest — or that it will worsen Iceland’s already critical financial woes — social unrest caused by the economic crisis in Iceland could suggest what other countries may soon be facing.

Iceland had one of the world’s largest gross domestic products (GDPs) per capita in 2007, at over $62,000 — roughly double the EU average and significantly higher than the U.S. figure of $45,790. Expanding 500 percent between 1975 and the current financial crisis, Iceland’s GDP grew exponentially over the last decade as the economy became dominated by international banking.

Famous for its woolen sweaters, abundant geothermal energy and lively nightlife, Iceland became the “Switzerland of the Arctic” with the expansion of its banks to mainland Europe. Constrained by the island’s small pool of depositors and the country’s sizable but limited pension fund, Icelandic banks sought to expand their capital by relying on the “carry trade” for funds. Taking advantage of the low-interest Japanese yen, Icelandic banks were able to offer their customers in Europe low interest rates, acting as middlemen in many cases for the booming real estate market in the United Kingdom.

Unfortunately for Iceland, the global credit crunch has dried up the carry trade. The downturn panicked investors around the world, and those dealing in the carry trade began repaying the original yen loans while they still had the money to do so. This caused an appreciation of the yen that left Icelandic banks holding debts they could not cover with assets. The end result of the crisis is an inflation rate of nearly 16 percent and climbing and a currency — the Icelandic krona — that has lost half of its value since the beginning of the year. Considering that Iceland is wholly dependent on imports for nearly all commodities (including food), the island nation is staring at a complete financial and economic collapse.

The social unrest in Iceland could be a harbinger of things to come on the continent, particularly in Central Europe and the Balkans, as the effects of the financial crisis move from the banking lobby and into the grocery stores. The depreciation of the Icelandic krona is particularly instructive, since it will lead to price increases and reduced purchasing power for consumers. A similar situation is already under way across the most troubled parts of Europe as currencies depreciate (particularly the Hungarian forint, the Bulgarian lev, the Serbian dinar and the Romanian leu).

In Iceland, the sentiment among a large portion of the population is that the government led the country to disaster and is now failing to do enough to secure the IMF loan. The reality behind the scenes is that the government is trying to avoid having to guarantee foreign deposits, particularly those from the United Kingdom. Meanwhile, Reykjavik is hoping that it can negotiate better deals with its Western creditors by leveraging appeals to Russia for aid and potential strategic partnerships.

Protests could also target governments’ handling of the economic crisis in the rest of Europe. Countries in Central and Eastern Europe that have asked for IMF aid (Hungary, Ukraine and Serbia) or will ask (possibly Romania, the Baltic states and Bulgaria) will have to cut their spending considerably. This will probably mean breaking election promises and cutting significant social programs in order to get spending under control. As the crisis unravels in Iceland, many capitals in Central Europe will nervously monitor events on the streets of Reykjavik for hints of what might await them in the coming winter.

As is known leaders of the G20 countries will be meeting in Washington also, on Nov. 15 for what has been dubbed Bretton Woods II. The French, who claim to be speaking for the Europeans, have hardened their position in the lead-up to the meeting, clearly insisting on revamping the international trading system through the creation of a European-led oversight body to prevent a repeat of the current financial crisis. U.S. President-elect Barack Obama may give more credit to international institutions than his predecessor, but it doesn’t look as though he is prepared to sacrifice American primacy in the global economy. We need to watch closely to see what, if any, compromise between the Americans and the Europeans comes out of this meeting. This is shaping up to be Bush’s last — and Obama’s first — big challenge in trans-Atlantic relations.

In the meantime the Russians  are wasting no time in attempting to shape global perceptions of the incoming Obama administration, portraying the new U.S. leader as weak and more prone to compromise on issues like ballistic missile defense (BMD). At the same time, Russia is using a variety of political and economic methods to split the European bloc. We must keep an eye on the reactions of the Central European and Baltic states — particularly Poland and the Czech Republic, which are getting twitchier by the day about BMD plans.

United Russia, the main pro-Kremlin party, will be holding a convention Nov. 20 where Russian Prime Minister Vladimir Putin is supposed to speak. Putin may use this as an opportunity to lay the groundwork for his return as president and to solidify United Russia as the sole political party of any worth in the country. With such big shifts in play, we need to be on the lookout for any sign of internal dissent in the Kremlin. This is a consolidation of power we’ve been long expecting, but we still have to be on alert for any surprises.

Keep your eyes also on the North Korean border. With the Dear Leader’s health in doubt, the surrounding region is busy making preparations for a potentially destabilizing power transition, which will only be exacerbated by a growing food famine in the country. If the Chinese, the South Koreans and the Japanese are this worried, we should be too. We need to dig deeper into the potential regional repercussions of North Korea descending into chaos.

As for Iceland's problems, joining the European Union is the only way out.

Another problem area in Europe is the Ukraine.  Sandwiched between a resurgent Russia and a slowly splintering European Union and NATO, Ukraine is the chief battleground in the new Cold War. For Russia, the issue is transforming this key buffer state from a potential launch pad for dismembering Russian power to a launch pad for spreading that same power deep into Europe. For Europe, at stake is its eastern periphery and its goal of finally ending security threats to the continent.