You have to wonder how a set of tiny islands that make up the world’s biggest hedge-fund venue and fifth-largest bank centre came to be under threat of bankruptcy. The Guardian reports that the government of the Cayman Islands is headed for bankruptcy — unable to pay its own staff and facing the prospect of introducing taxes as income from the world’s shrunken financial system collapses. What’s more:

…the situation is about to get worse after the British government, which has ultimate responsibility for the islands, last week refused to bail out the Caribbean idyll. It is not convinced the country will have the money to pay it back.

And adding insult to injury:

Chris Bryant, a junior Foreign Office minister, has demanded the Caymans cut its borrowing and debt. And in a shockwave that will send tremors through the island’s financial elite, Bryant even suggested that the tax haven introduce taxes.

The problems arose after the government spent a huge amount of money upgrading the island’s ancient infrastructure betting big that continued growth in its financial sector would cover its $67.5 million budget deficit. Sounds like a remarkably similar strategy to that of another island Brits have an interest in.

Bankruptcy threat brings new concept to the Cayman Islands … Taxes [The Guardian]