strong-arm tactics

[thedarkproject]

Someone facetiously commented on the BBC site recently that one way out of the credit crisis was simply for a country to default on its debt to smaller countries who have no real way of forcing them to pay.

So it's been interesting to see the economic hostilities between Iceland and the UK that evolved over the last 24hrs, as a result of the opposite of this situation happening.

- The Icelandic bank Glitnir was nationalised, indicating problems with the Icelandic economy, so worried UK savers and investors started moving their funds out of other Icelandic banks such as Landsbanki, contributing heavily to Landsbanki being nationalised also.
- These banks were not covered by the UK savings deposits protection, meaning UK investors would lose money.
- The UK government claims to have asked Iceland what they would do about this, and the Icelandic government are reported to have said they will not pay any compensation to UK citizens, only Icelandic citizens. (One would presume they simply don't have the cash to go around.)
- Because Iceland was judged therefore to have defaulted on the debt, banks based in Iceland were judged to not be solvent, and so the Financial Services Authority took the UK operations of a 3rd Icelandic bank Kaupþing and sold them to protect investors.
- This led to Kaupþing being nationalised overnight, since confidence in their debt would have plummeted to a new low.
- And now the UK government has started freezing Icelandic assets in the UK, using powers under The Anti-Terrorism, Crime and Security Act 2001, starting with those of Landsbanki, with a view to perhaps selling them off to compensate UK investors, or at least to hold them as security, as up to a billion pounds of UK local government money is invested in Icelandic banks, on top of any private investments.

Crazy stuff. The UK is taking a hard line with Iceland over this, but Iceland probably made a big mistake in explicitly saying that they wouldn't cover UK investors, when other countries (eg. Ireland) are saying they'll guarantee the deposits of foreigners in order to shore up confidence in their banks. Perhaps they realised the situation was so bad that they couldn't afford to take that gamble since there are so many UK (and Dutch, apparently) investors who stand to lose out if things continued.


Apologies to velvetchamber if I've mangled any Icelandic names above...

Comments

[velvetchamber.livejournal.com]

You haven't mangled, but someone must have, as this thing really does come as a surprise to the Icelandic public, as our minister of finances is reported to have said (my translation):

"I said to him [Allistair Darling] in our conversation that we would stand by our statements of keeping our commitments. We had the insurance fund and would support it. We were changing the law to strengthen the position of deposit owners and that their access to money from the system was a priority."

Right now people seem to question Gordon Brown's sanity a bit. From where Icelanders stand he comes off as really trigger happy.

[thedarkproject]

Well yeah, the British media will portray it one way and the Icelandic media will portray it another. It will be interesting to see if more details emerge, because it seems clear that there is total disagreement over what was actually said, with far-reaching consequences. I thought I saw a quote from Iceland's PM stating that only domestic investors would be covered by the insurance plan, but I don't have time to try and find it right now. That may be the source of the problem.

There's a lot of exaggeration too, talking about it being a 'terrorist law' being applied to Iceland; the law in question does cover terrorism, but generally it's for any offense against the state.

[velvetchamber.livejournal.com]

The latest news are that Árni Mathiesen, our minister of finances says that he finds it highly improbable that there was any misunderstanding between him and Alistair Darling, that they had discussed the Landsbanki situation, but that Kaupþing was not mentioned.

Although I would not be so certain that the Icelandic media will report in favour of Icelandic officials, they seem to be none too happy with them. I personally don't think I am qualified to say one way or the other, but there have been calls for all three heads of the central bank to resign, and some ministers as well. One person on the board of the Central bank has already officially resigned and challenged the three heads to do the same, in the light that efforts are failing.

[velvetchamber.livejournal.com]

It is possible that speculations on whether it was ever legal for "fjármálaeftirlitið" (lit. financial-affairs-supervision, don't know what to call that in English) to say when the IceSave accounts were first introduced that they would be covered by Iceland triggered this assumption that Iceland would not cover the deposits.

Icelandic investors are not covered in this whole hurricane, only normal bank accounts are covered, not funds and certainly not stocks.

[ironlord.livejournal.com]

I think we should settle this with a fight.

Alistair Darling versus Magnús Ver Magnússon.

Place your bets now!

[velvetchamber.livejournal.com]

That is hardly fair against your minister, can he not choose his champion?

[markachu.livejournal.com]

Well, Gary Glitter's free at the moment....

[rabbleuk.livejournal.com]

I think that's the point ;)