Our Prime Minister is holding a press conference as I type this, has just done so in Icelandic and is at the moment speaking to the foreign journalists that are here in Niceland monitoring the situation.
Things have happened swiftly this morning, as in previous days. The legislation introduced in parliament yesterday was passed last night and this morning the state intervened in the operations of Landsbanki. What that means in practice I cannot tell but supposedly the bank is operating normally here in Iceland, as are the other banks. [However, mbl.is has reports right now that people went down to the bank to withdraw their savings and were told to return in a few days - whatever that means. Perhaps it refers to the trading in funds as I outlined in a previous post ... that trading is still suspended.]
The biggest bombshell this morning, though, in my view, and the one likely to have the most political implications, is that Russia has come forward with an offer of a loan to the Icelandic state in the amount of EUR 4 billion. Our government has accepted and will be sending people to Moscow shortly to negotiate the terms.
This is hugely significant, particularly as the nations that Iceland has heretofore considered its ‘friends’ have effectively turned their backs on us in these very difficult circumstances. As the Prime Minister ended the English part of the press conference just now, a journalist asked about the loan offered by Russia and he saw reason to return to explain Iceland’s position. Seems that over the past few months the government has appealed to many of its ‘friends’ for currency swap agreements but they have not always been forthcoming. The PM refused to mention any specific countries, but presumably this is a direct reference to the United States Treasury, which about a month ago very significantly left Iceland out of a substantial currency swap agreement with the Nordic states, something that has never happened before. In previous agreements, Iceland has always been part of the Nordic package. So in the words of our Prime Minister, and I quote:
“In such circumstances, one has to look for new friends.”
Now, far be it from me to look a gift horse in the mouth, but since the extension of this loan has been approved by Mr Putin himself, something tells me the Russians are sidling up to us for a very specific reason. See, Iceland has been a strategic point for the two superpowers for years. During the cold war, this country was a major base for the US [as part of NATO] in its efforts to keep close tabs on Russia, as demonstrated by the US military base that was operated here until - oh - two years ago, when the US government unilaterally decided to pull its troops out of Iceland, as the Russians were no longer considered a threat.
Well, as most of us know, this situation has changed drastically in the last few months. A new cold war may be brewing, and - oops! - the US has relinquished its strategic base in Iceland.
To summarize: a] The US pissed off Icelandic authorities two years ago, when they unilaterally pulled their military out of Iceland, with the accompanying job losses and whatnot.* b] The US pissed off Iceland a few weeks ago when they purposely left them out of a currency swap agreement. c] Iceland has gone looking for new friends. d] Russia is Iceland’s new best friend.
Make of it what you will.
THE STORM HAS BLOWN OVER
And right now we have sunny skies, although the wind is still blowing. [Don't you just love a good metaphor?] It’s warming up, too, currently 10°C [50F] and the sun came up at 7.55, will go down at 6.34.
* I think around 600 Icelanders lost their jobs in one fell swoop - but generally, after the initial shock, it was agreed that this was a very good thing for the Icelandic nation. The state bought all of the military’s assets and the NATO base has since been turned into a university.
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Well, you can only speculate about the motives of the russians. One might be show up as a good partner (also to other countries) and to tease the US. Iceland has not very much of a choice…
And probably Putin just wants to hunt and fish in another country (just kidding).
The Beeb is reporting that UK “Customers of the Icesave internet bank have been warned they will probably have to claim compensation for money held in their savings accounts.”
http://news.bbc.co.uk/1/hi/business/7656387.stm
Riveting reading - keep up the terrific work , Alda!
Fair enough. Iceland needed to get a loan from somewhere, and there aren’t many countries with the resources to do that - if the US couldn’t, or wouldn’t do it, then Russia it is. What’s in it for Russia (apart from scoring points against the US) remains to be seen. Maybe a lot of those Russian billionaires have money in Icelandic banks…!
Thanks Alda, I stand corrected!
Too little too late I am afraid and at what cost? When the EU, USA and fellow Nordic countries will not lend to Iceland that says something very grave about the perceived future status of the Icelandic economy and the ability of Iceland to make good on loan commitments.
Pegging EUR/ISK at 130 is fantasy, it is trading now at over 200.
When Haarde says “will absolutely not default on its foreign debt.” this is more hope than fact.
Fascinating. Truly fascinating. I’m very curious why the decision was made to leave Iceland out of the currency swap agreement (was a reason given?).
At the very least, I do hope this is good news. Although the question does arise if you’ll have to give up that nice university housing at the old base for the new Russian base …. [I'm just joking, I hope]
Well, at the very least there’s no saying no to the new oil processing plant in the West Fjords, that’s for sure…
I wondered what BB would say about this, the Russkis not being his favourites all in all, but all he said on his home page about it was to remember when they helped us, in the Cod Wars. Kudos to him.
“Russia has come forward with an offer of a loan to the Icelandic state in the amount of EUR 4 billion. Our government has accepted and will be sending people to Moscow shortly to …”
I read it as…
“will be sending people to Moscow shortly to pick it all up.”
I had visions of Icelanders with wheelbarrows full of cash tramping through Sarah Palin’s garden.
My first thoughts were like hildigunnur’s - oil processing plant, combined with harbours for them to stop off in on their way through the new arctic pass that is being cleared by global warming. Also like you said it does give a big finger to the US.
I think that Iceland may also have neglected to apply to be a part of the package, wasn´t that the message that the CB was giving when asked why we weren´t included in the currency exchange - I am getting soooo confused.
Annie: laughing out loud at the image of Icelanders with loads of Russian cash in Palin’s yard….Hahaha!!! I love ironic humor ; ‘ )
I have been wondering: where does Russia get all this cash to lend to us? Can anyone help out with that one? Oil money? Something else?
As for the US: “et tu Brute?”
I suspect that the US government wasn’t thinking at all about the potential strategic implications of not including Iceland in a currency swap, but then it’s not like Iceland has much to bring to the table in one of those swaps. The financial press over here compared the krona to the Zimbabwean dollar and Turkmenistan manat as one of the worst performing currencies in 2008; between that and the overseas assets risks for Icelandic banks, a dollar swap would be pretty one sided.
For instance, the swap you mention with Norway came on the heels of the Norwegian central bank putting up nearly $10 billion to ease short-term liquidity issues. There’s more of a quid pro quo going on there. Also, the swap wasn’t just with Nordic states, but also Japan and Australia.
The real message here is not that the US doesn’t like Iceland, but that - to be blunt - Iceland is considered to be small enough to fail. I’m not endorsing this view, but it’s hard to escape that conclusion.
As for the Russians, good luck with that. If Icelanders thought that the US were bad tenants… well, in any case, in the unlikely event that the US actually has any money left next year, perhaps they will be able to put together something to buy the Russians back out. We shall see.
(This is not a fun time, is it?)
One co-worker suggested today that Norway should just go ahead and buy Iceland. All of it. We keep taking your soccer players, anyway.
We didn’t realize that Russia beat us to it.
I almost feel like I should apologize on behalf of the majority of people in the US. It will take us months, and possibly years, to recover from the worst and most corrupt presidency in the history of the US. In the meantime, the US has become so weak with its 10+ trillions dollar debt, and we all hope that it can only get better. At which point I am sure it will be time to help small nations.
I thought the US still has an effective presence in Iceland, the US Air Force pays all operational expenses for the 4 Air Defense Systems of the NATO Radar Agency. Nothing like the big base in Keflavik, but still…
Thanks, Alda, for the great information you provide. There are many of us who really want to know what is going on there, and unless you can read Icelandic, the only credible source is your blog, and the bits that flow from DNFI.
With respect to the loan from Russia, is it a done deal?
This from Bloomberg:
Central bank Governor David Oddsson said an announcement earlier today in Reykjavik that the Russian loan had been agreed upon was incorrect and talks were “ongoing.” Russian Finance Minister Alexei Kudrin confirmed that “we have a request from the Icelandic government” and said Russia’s reaction is “positive.”
Full text at:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aV.chNI42D8o
Alda, if you have time, can you describe how everyday living may have changed in Iceland with what has happened in the past 2 weeks.
As always, thanks for your blog. A great source of information for those of us who love Iceland.
Don
What Dorothy Gale said.
As I’ve mentioned before, I’m not confident at all about my grasp of the economic situation, but I hope this Russian loan thing turns out to be a good thing.
As someone else mentioned, I’m surprised the Russian govt. has that kind of cash to loan.
Hang in there.
I was going to suggest asking Sarah Palin for advice on dealing with Russia, but with all those wheelbarrows leaving ruts in her lawn, now might not be the best time.
Thank you, everyone, for your input. There are lots of points that need clarifying that have come up in the comments so I’m going to do a separate post later tonight. Till then!
I am watching DÓ and I am cringing and at the same time admiring the mans audacity… If the banks had gotten so big, whose fault was that? Oh I sort of look forward to the historians take on this in 20 years time. Guð blessi Ísland (someone has to)
It may interest you to know that Icelandair sent out a super-cheap fare offer to people in the US this afternoon. (I do suspect they read your comments.)
I’ll look forward to hearing the next post, as I can’t really listen to Davið Oddsson from here (plus, I have to go to work right now). Keep us posted.
Just to add to the fun and games, Alcoa’s third quarter earnings were down 50% over the same time last year. I’ll be curious to see if that has any effect on their operations in Iceland.
I just found your website a few weeks ago and was so enthralled by your articles and photographs. Really beautiful. I have friends from Iceland and have visited 3 times in the last 4 years and think it is one of the most amazing places there is. I’ve been wrapped in personal mess for a while and didn’t quite register the economic issues facing Iceland, even though we were there just this last July. So when the news trickled to the surface of California news organizations, first place I came running for an inside look was here. I really am wishing everyone, US and elsewhere a stable comeback quickly. I am worried for my friends and the health and happiness of everyone in Iceland.
Question though on the closing of the US base there. Why am I remembering all sorts of anti-US military stuff about the base, about how the US should get out and keep our nose out of other people’s business and how we are always meddling in other people’s stuff? I thought everyone really WANTED us gone. How could it have been unexpected if so many people were telling us to get out for years? It feels awfully weird, I gotta say, to be told we are bad guys for being there and then we are bad guys for leaving. Maybe I am just remembering it wrong?
Don, everyday living hasn´t changed much. None of us have ever experienced such a state of emergency before so we are all just kind of holding our breath and seeing how it will end. It´s just that with 2 News channels total and a small everything, it is pretty easy for the whole nation to get upset so we are kind of bracing ourselves for the impact.
That is one reason why I don´t have a lot of belief that our tourism will flourish in these conditions. Although our situation is dire, most other countries will not be able to travel anywhere regardless of Iceland being easier on the budget right now. When you visit a place you also don´t want to be surrounded by locals that are fighting for their lives from day to day. I haven´t done any research on this but I´m sure there is not a significant increase in Zimbabwean tourism from year to year
Ann, the opposition to the base was never very significant. The left right party was against NATO and the base. Most Icelandairs had no strong feelings about it and just developed bad ones when they realised all the jobs that were going to be lost. We are kind of like that. We can be manipulated easily by our media. Something I am sure we are experiencing several times a day right now.
Right now, I wish we had the brainwashed view of many Chinese that our leaders know best and hope it´s right.
the left GREEN party, sorry!
To quote wikipedia:
“During the 1960s and 1970s, many rallies were held to protest the U.S. military presence in Iceland (and in particular at Keflavík) and every year hundreds, sometimes thousands, walked the 50 km road from Reykjavík to Keflavík and chanted “Ísland úr NATO, herinn burt” (literally: Iceland out of NATO, the military away). One of the better known participants was Vigdís Finnbogadóttir, who later became the first female president of Iceland.”
Ann - just to follow up on what Snorri and roughdoggo have said. There was some opposition but mainly initially and mainly about Iceland being in NATO - you know, because we don’t want to get drawn into wars and stuff. I noticed here on the blog around that time that a lot of Americans PERCEIVED that there was anti-American sentiment here, but really, there wasn’t. That said, I think many people were relieved when the military was gone - but only because we don’t like militaries, not because they were Americans.
And thank you for your kind words. Very much appreciated.
How funny that it should be the Russians that come to the rescue just as Landsbanki goes into recievership. What with Landsbanki being owned by Björgólfur Thor Björgólfsson, who made his first money in Russia, that he then invested in Eimskip, who’s ceo, Magnús Þorsteinsson, still flies to Russia once a month. Maybe certain Russian elements stand to lose a lot from Landsbankis demise? ….No, surely not, must just be a coincidence….
ino - come on, out with it!
http://www.dailymail.co.uk/money/article-1069715/200-000-Britons-fear-losing-savings-collapse-Icelandic-internet-bank.html
“money began to flood into Iceland. No one is quite certain where it all came from - most of it was via anonymous tax havens such as the Cayman Islands ”
I know Icelanders do not like to talk about this, but no one can ever explain to me how 3 man turned $400 m from a brewery into personel assets of over $5.000.000.000 in under 7 years time…..
I recall people telling me, every day, how relieved they are that “the occupation” is over, in reference to the American presence at Keflavik. Now suddenly Iceland is entitled to welfare from American taxpayers? You’re “pissed” that spigot was shut off? That sounds rather pathetic.
Snorri, About 2 months prior to closing the base, MBL published a poll that showed 72% of Icelanders wanted the US out of
Keflavik ! So when you say …..”Most Icelandairs had no strong feelings about it and just developed bad ones when they realised all the jobs that were going to be lost” ……I think 72% is pretty high. Of course, that has nothing to do with closing the base but its one thing that always stuck in my mind when I heard about how “disappointing” it was to Iceland when it closed. Maybe the new 4B euro loan is payback for all the recent unauthorized violations of your airspace by the Russian bombers. Who knows….. Why didn’t they ask for a loan from the IMF? It likely would have come with palatable stipulations and less political fallout. I can see it now, ….”Empty Vodka bottles rolling out of the Lada Sports” Spaciba Comrades…
- from Alda - “a lot of Americans PERCEIVED that there was anti-American sentiment here, but really, there wasn’t.”
- There was much more than just a perception of anti-American sentiment in Iceland ….our military personnel was subjected to years of name calling and even personal attacks. They were told for years to get out of Iceland ….and it was not a big surprise to Iceland when the US military left, they had been seriously downsizing for several years in preparation for leaving, and the approx. leave date had been known couple of years in advance…it was NOT a surprise.
s’funny y’know… i was in reykjavik during the new year celebration, and i distinctly remember turning to my wife and saying ” gee, there sure are a lot of russians around here. did a cruise ship empty out, or what?” true story. are there normally a lot of russian tourists? and if so, is there a connection between them and the sudden offer of a bailout for landsbanki? btw, the russians seemed to be very well off financially. i saw alot of fur coats and jumbo bling!
My mom’s first question was, “does that mean their currency has fallen enough we can afford to visit???”
Not that we wish our scary economic times on anyone, but maybe new tourism can be your economic stimulus package!
To all Americans that react to this blog about real/percrived anti -americanism you have to understand the following. Europeans have a clear and precise understanding of you and your society. Icelanders, Europeans and many more understand the difference between those American citizens that travel the world, read up/comment on foreign blogs and those that keep electing your conservative governments.
I have seen with my own eyes how, late at night, the men and women from the airbase get treated with hostility, but then again they are the sort of americans that go around a foreign country with a swagger, as though they were better than anyone else because of the passport that they hold.
Neither in Iceland, Holland, nor England have i ever encountered any negative reactions just because somebody is American. Yes, you will be asked questions, but people usually have you sussed rather quickly for what side of the fence you are on.
True, europeans are a lot more “liberal” than Americans, they are also a lot less partisan and a lot more personel and less agressive.
Americans are, on a human/personal level, adored, admired and always welcomed. Unless they start making stark political statements, that show their ignorance…
US actions towards Iceland are revenge for giving Bobby Fischer a visa.
Hi Alda,
Not to drive a point home and realizing that this a bit late, but i just read this in the Times…
“The Russian eagerness to loan €4 billion to the Icelanders is not just mischief, or an attempt to buy the goodwill of a nation; it is also because Russian businessmen have been attracted by the laundering possibilities offered by a banking system that is not very thoroughly regulated.”
http://business.timesonline.co.uk/tol/business/economics/article4923183.ece
Just like that. Feels a bit like the cat might be out of the bag any moment now….
Sadly, my take on this is that your former friends (my wretched government, included) want to drive you into the arms of the IMF/World Bank vultures — who’ll proceed to destroy everything good about Niceland for the greater profit of transnational corporate predators.
Most developing nations no longer want those vile strings-attached loans — the Latin Americans, Asians and Africans have gotten wise — so now they’re looking to suck the juice out of more advanced economies. With only the likes of Kosovo, Georgia and Burkina Faso left on their books, they’re damned near out of business!
Anyway, right-thinking Icelanders should raise the alarm. If they get hooks into you, they’ll soon be privatizing everything in sight and you can kiss decent wages and social spending goodbye. They’ll push you into the EU, too — so there goes real democracy out the window and in comes a permanent horde of cheap help.
Russia was on the IMF/World Bank victims’ list, remember? It was pauperized in the ’90s by these remorseless Friedmanites, which is a big part of why Putin and his team are hopping mad (like Chavez and Morales are). I hope Russia is offering funds to Iceland merely as a mercy to keep you off that path, but even if there’s an ulterior motive, I don’t see how it could possibly be MORE ulterior.
Cheers,
Erin in Albuquerque