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Iceland News

This page contains brief summaries of and links to media reports on the topic of Iceland News.

How the Icelandic saga should end

Iceland is famous for its sagas. But the latest one is truly dramatic: the balance sheets of its privatised financial sector grew from twice to 10 times gross domestic product, in five years. In the absence of a lender of last resort, this story had to end badly. In the panic of 2008, it did.

Because Iceland was a member of the European Economic Area, its banks were allowed to set up branches freely. To raise money, Landsbanki, one of Iceland’s now collapsed banks, set up an internet bank, Icesave, which gulled depositors by offering attractive interest rates. Under the European Union directive, Iceland also had an obligation to establish a deposit insurance scheme, which it did, through a levy on those banks.

Then came the collapse. Some Icelanders blame Gordon Brown, Britain’s prime minister, for pulling the plug on their banks. That is unreasonable. Competent observers had long concluded that the financial system was a house of cards. It was sure to collapse in a panic. Less unreasonable is the complaint over the UK’s use of a section of its anti-terrorism laws to freeze assets. But some such action was justified.

Since the banks had turned Iceland into a hedge fund, with massive short-term foreign currency liabilities used to finance risky long-term assets, the economy was doomed. 14-Jan-10.

http://www.ft.com/cms/s/0/ca8f222e-0141-11df-8c54-00144feabdc0.html

Grimsson Says Iceland Will Be Unscathed by Icesave (Update1)

Jan. 14 (Bloomberg) -- Iceland’s President Olafur R. Grimsson said the island’s economy will emerge unscathed by his decision to put to a referendum a U.K. and Dutch depositor bill that polls show voters will reject.

“Nothing very serious will happen to the economy because then we will go back to the agreement which was made last summer between these two countries,” Grimsson said in an interview in New Delhi today, where he is being awarded the Jawaharlal Nehru Award for International Understanding.  Business Week website - 14-Jan-10.

http://www.businessweek.com/news/2010-01-14/iceland-president-says-economy-to-emerge-unscathed-from-icesave.html

IMF and Sweden to delay Iceland loans

Iceland cannot agree how much it owes for the failure of Icesave's parent, Landsbanki, which meant the UK Treasury had to rescue 300,000 savers in October 2008.

Both the International Monetary Fund and Sweden signalled that their hands were tied by the fact that Iceland is unlikely to reach an agreement before a a review of aid for the country is completed later this month. 14-Jan-10.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6990795/IMF-and-Sweden-to-delay-Iceland-loans.html

Iceland says IMF aid likely delayed

Niklas Pollard, Reykjavik - Reuters:

Iceland's economy minister said on Wednesday there were signs an IMF-led aid package would be delayed after a hitch in a deal to repay Britain and the Netherlands money lost in the island's banking collapse.

Economy Minister Gylfi Magnusson said the centre-left government was “very far” from a solution which could lead to a new repayment deal and allow the government to cancel a planned referendum in Iceland on the issue.

“Obviously the Icelandic government is trying everything it can to prevent a delay (to the IMF program), but I think the odds are against us,” Mr. Magnusson said in a Reuters interview, pointing to delays last year due to the drawn-out dispute. . .

An agreement with the two European Union countries is seen as key for the continued flow of aid to Iceland to underpin an economic recovery from a deep recession after its main banks all collapsed in the space of a week in 2008. Toronto Globe and Mail website - 12-Jan-10.

http://www.theglobeandmail.com/report-on-business/iceland-says-imf-aid-likely-delayed/article1429465/

 

Landsbanki Major Shareholder's Books a Mess

During the bankruptcy proceedings of Samson, a holding company that was owned by tycoon father and son Björgólfur Gudmundsson and Björgólfur Thor Björgólfsson, through which they held their majority share in Landsbanki, it has turned out that the company’s book-keeping was full of glitches.

Loan agreements are lacking in the case of many high transactions, including to four offshore companies in Tortola, worth ISK 800 million (USD 6.4 million, EUR 4.4 million) in total, Stöd 2 reports.  13-Jan-10.

http://www.icelandreview.com/icelandreview/daily_news/?cat_id=21123&ew_0_a_id=356500

Iceland's voters set to remain out in the cold Workers blame the IMF, but the fund says it doesn't care about Icesave. Richard Northedge reports

. . .Landsbanki was one of three Icelandic banks that boomed during the past decade, shifting the country's economic focus from fish to financial services. Deposits raised abroad, including from the UK and the Netherlands, totalled six times the island's gross domestic product, briefly putting Icelanders among the richest people in the world. But since all three had to be rescued in 2008, the economy has collapsed and the 320,000 residents face an austerity programme that makes Britain's look insignificant. . .

It will take only a simple majority of voters to reject the law and a large part of Iceland's population is angry at its treatment by the IMF and countries such as Britain. Gunnar Sigurdsson is an artistic director who speaks for a wide range of other workers when he says: "A majority of the Icelandic people are against further co-operation with the IMF. We seriously doubt that the co-operation between Iceland and the IMF is for the benefit of the Icelandic nation. It is becoming clear to us that the agenda of the IMF is primarily to indebt the Icelandic nation in order to protect the interests of investors." . .

Mr Flanagan says the IMF is evaluating the situation and consulting with Iceland and other countries. "As I've said, Icesave has never been a formal condition of the IMF programme and it is not a formal condition now either. What we require at every review is that the mix of policies, macroeconomic targets and external financing be consistent. If it doesn't add up, we simply can't put it in front of our executive board. It would not be accepted.

"Would non-passage of Icesave affect financing assurances? I don't know how these things will play out," he says. "I'm not willing to speculate."  Independent on Sunday - 10-Jan-10.

http://www.independent.co.uk/news/business/analysis-and-features/icelands-voters-set-to-remain-out-in-the-cold-1862955.html

Iceland faces turmoil after refusal to sign law

Iceland's president has refused to sign legislation to reimburse Britain and the Netherlands for nearly €4bn ($5.7bn, £3.6bn) lost in a failed Icelandic bank, threatening to plunge the crisis-hit country into a fresh round of political and economic turmoil. . .

The decision will be a serious setback for Alistair Darling , UK chancellor, who has spent months trying to craft a deal.

British officials refused to be drawn on the likely implications of Iceland abandoning the deal. However, Mr Darling warned on Monday that failure to pass the law would "make things much more difficult".

There is little appetite in Whitehall to further soften the terms of the loan agreement that was already regarded as generous, giving Iceland an effective grace period of seven years to rebuild its economy. 06-Jan-10.

http://www.ft.com/cms/s/0/46022a36-fa63-11de-beed-00144feab49a.html?nclick_check=1

 

 

Iceland leader rejects UK, Dutch compensation bill

REYKJAVIK - Iceland's president rejected a bill to repay Britain and the Netherlands more than $US5 billion ($A5.5 billion) their savers lost when Icelandic banks collapsed, forcing a referendum on the issue and threatening vital economic aid. . .

Britain warned Icelanders that if they rejected the bill, the north Atlantic island with just 320,000 people faced financial isolation.

"The Icelandic people ... would effectively be saying that Iceland does not want to be part of the international financial system," Financial Services Minister Paul Myners said. . .

Rating agency Fitch reacted to Mr Grimsson's decision by downgrading Iceland's long-term foreign currency issuer default rating to "junk" status with a negative outlook.

Standard & Poor's followed up saying Mr Grimsson's decision could lead it to cut, by one or two notches, its current BBB-minus rating to "junk" status, citing the political uncertainty and external liquidity pressures.

The next tranche of a €1.8 billion ($A2.84 billion) loan from Iceland's Nordic neighbours is also likely to be delayed, a Finnish official said. 06-Jan-10.

http://www.reuters.com/article/idUSLDE6040YB

 

Iceland Says It Won’t Default Following Junk Rating (Update3)

Jan. 6 (Bloomberg) -- Iceland’s Finance Minister Steingrimur Sigfusson said his government won’t default after its debt was downgraded to junk following a presidential veto of a depositor bill that had sought to repair investor relations.

“I don’t believe there’s anything that points to” Iceland defaulting, Sigfusson said in an interview in Reykjavik yesterday. Even so, “patience toward Iceland is running out. That is a reality we have to face.”  06-Jan-10.

http://www.bloomberg.com/apps/news?pid=20601102&sid=afPdzkXiFxNw

Iceland Blocks Bank Compensation for Foreigners

The president of Iceland blocked a hard fought $5 billion compensation deal with the British and Dutch governments on Tuesday, upending the precarious finances and politics of the island nation and further jeopardizing already frayed ties with Europe and international lenders. . .

The savings of Icelandic citizens were protected by an unlimited domestic deposit guarantee.

In a statement, the British treasury — which along with its Dutch counterpart pushed Iceland to amend a previous bill, making it tougher on Iceland — said that the “government expects Iceland to live up to its obligations.” . . .

“By pushing so hard, the British and the Dutch might push Iceland into bankruptcy and get no money back at all,” said Jon Danielsson, an expert on the Icelandic economy at the London School of Economics.  Deal Books blog in The New York Times - 05-Jan-10.

http://dealbook.blogs.nytimes.com/2010/01/05/iceland-blocks-bank-compensation-for-foreigners/

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