Relations between the UK and Iceland hit the deep freeze today.
It’s a bizarre scenario. For the uninitiated, it revolves around Landsbanki’s UK operations, Icesave, into which thousands of Brits, including a number of local councils, deposited their money.
Yesterday morning UK Chancellor Alistair Darling was quoted as saying that “believe it or not” Icelandic authorities had “told him” that they would not be honouring their commitment to foreign depositors to compensate them for losses, adding that it seemed as though the Icelandic state did not have enough funds to do so. A short while later, Gordon Brown blasted the Icelandic government, saying the UK government would sue Iceland’s ass to the max in order to fully recover any funds that were lost.
Meanwhile, Icelandic authorities were, like, Dude! WTF!?! No one had any recollection of telling Darling anything of that sort.
So everyone started spinning in circles, trying to figure out how the Brits had arrived at this conclusion. See, over here we’d been told that our government WOULD guarantee deposits in those Icesave accounts. So the Brits must have misunderstood, people said. Something lost in translation, or whatever.
In trying to find a scapegoat, lots of people leaned towards an interview with Central Bank Governor Davíð Oddsson in Kastljós on Tuesday night, in which [as I understood it, at least] he said that those who had invested in SHARES in the Icelandic banks would probably incur losses, just as they have here, but that regular depositors would be covered by the same compensation scheme that Icelandic depositors are. This seemed to be the most likely scenario for the cock-up and by this morning, half of the population was once again furious at Doddson* for speaking so recklessly as to make old Gordon Brown misunderstand him. [Whether it was proper for Doddsson to appear on state television and shoot off his mouth the way he did is another matter entirely.]
So our PM Geir Haarde had to go into serious damage control mode with the Brits yesterday, getting the message across that the whole thing was based on a misunderstanding and that naturally Niceland would be honouring its commitments like the civilized nation it is. Yes, but was the nation “going bankrupt” as Alistair Darling had said? Geir reiterated it was not and that the liquidation of Landsbanki’s assets would likely go a long way towards covering those deposits.
The tragedy in this “little misunderstanding”, however, is that when the GORDON BROWN THREATENS TO SUE ICELAND headlines hit the UK yesterday, there was a bank run on Kaupthing, our last remaining functioning bank and the one deemed to have the potential to carry on operating. Last night it, too, folded and was taken over by the state.
It was bad enough to wake up to that on the news this morning, but imagine our surprise to learn that Gordon Brown had invoked fricking anti-terrorist legislation in order to freeze Kaupthing’s assets. Not only that, but he appeared in the global media this afternoon slamming the actions of the Icelandic government as “totally unacceptable” – still claiming that we were not going to honour our committments, even after our Minister of Finance had spoken to Darling this morning and told him YET AGAIN that Iceland would be compensating the depositors.
The acting Minister for Foreign Affairs instantly summoned the British Ambassador for a meeting and made it clear that the Icelandic authorities considered this matter to be very serious and detrimental to our diplomatic relations. I mean: being called Terrorists? By a supposed ally? On par with Osama Bin Laden?
Honestly, the whole thing seems totally and utterly out of proportion and the British Prime Minister completely out of line. To make radical statements that have the potential to cause so much damage without even first going the diplomatic route, even just CONSULTING your counterpart here in Iceland to see if there is any truth to the allegations … it just seems completely bizarre and makes one wonder what else is going on. My first thought was that Brown’s over-stressed, that he lost his cool and / or was looking for someone else to blame. But for what? – The answer seemed to present itself later in the day, when it transpired that the British government had urged a lot of the local councils to invest their money in the Icelandic banks – and now the councils were furious and demanding that the government do something to help them recover their losses.
Meanwhile, Darling claims the [mis]understanding came about in conversation with our Minister of Finance Árni Mathiesen. Being the least popular of our cabinet ministers and an exceedingly tactless man, a lot of people here are calling for the transcript of that conversation. I, for one, would love to hear it. In fact, I think we NEED to hear it, if only to determine whether old Árni needs to be sent to English language classes. [But in line with Icelandic government administration, we probably won't.]
Ah. All this drama. Sad to see it come to this, especially with the UK which is a nation so dear to the hearts of most Icelanders, YT included. Just adds to the gloom and doom of this wretched situation.
PS. Those of you in the US will be able to hear me interviewed on The Takeaway on WNYC radio in New York at 6.10 am tomorrow. If you get up that early.
* Thanks to Dr Gunni for coining that phrase.
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One important matter on which nobody seems to comment is that Kaupthing’s U.K. operations are/were subsidiaries operating under the auspices of the U.K. financial authorities and as such all compensation is payable by the U.K. authorities. Landsbanki’s operations are /were as a branch office, and therefore liable to regulation and compensation to the EUR 20.000 EEA limit by the Icelandic authorities.
Can someone tell me what part of Brown’s GBP 1-20 billion (I’ve read all sorts of figures) is Kaupthing and what part is Landsbanki ?
To follow Barry’s comment; I’ve just heard on the news here (in Switzerland) that Kaupthing’s Swiss customers (there is just one branch here; in Geneva) are to receive compensation according to Swiss banking regulations, to the tune of CHF 30,000 max. No one is talking about making the Icelandic government accountable.
Gordon Brown’s legacy is a British economy in tatters; given his reputation (deserved or not) for being tight with a public pound, there’s irony in all of this.
More than one person mentioned the Falklands War; I’m reminded of an episode of the 80s sitcom “Yes Prime Minister” when the PM describes an event as something that “could be my Falkland Islands,” and his Private Secretary answers, “Yes, and you could be General Galtieri.”
There’s no question that from a diplomatic standpoint, this was a colossal error of judgment. However, since we’re talking about nearly UKP 800 million in local authority money, it’s no surprise that the escalation rate just spiked. Brown’s use of the anti-terror laws was about as inept as suggesting that this could be resolved through the courts – one is to exacerbate the crisis, the other is to ignore it.
As for the little Englander above who would like to pin this on the Scots: if you lot were better at running your own country, you wouldn’t need to blame anyone up north, would you ; ) You’ll get Parliament back next time, sir, because surely there can’t be a Tory leader inept enough to lose the next general election.
Orchidea, I suspect that’s the difference between individual saver accounts with government guarantees as opposed to institutional investment accounts – so unless, say, the Moray Council put their money into the bank in increments of UKP20,000, that’s not going to help much…
Thank you for clarifying that, Colin. So… hypothetically, did the Moray Council put all its eggs in one basket? And did it have so little faith in the domestic banking industry that it chose to bank with an Icelandic bank’s subsidiary? Or were the Icelandic bank’s conditions just too tempting?
I believe that the local government authorities were provided with guidance – I assume from the central government – that Icelandic banks were a safe bet because of their good ratings with credit agencies like Moody’s, and because of the rate of return being slightly higher than domestic UK alternatives.
As I understand it, the pressure is that the local authorities get their money on a quarterly basis, so while they may not believe that their investments have disappeared, they do have short-term liquidity risks – in other words, they are frozen just as individual consumers are. When you start to see day-to-day government services at risk because of the banking crisis, it’s not hard to imagine the reason that the Brown administration is panicking.
In the longer term, someone’s going to have to pick up the pieces and re-think whether UK taxpayer funds should have been put entirely in overseas accounts, but that doesn’t help anyone at the moment.
I just heard a good explanation on BBC Radio 4 about why the Icelandic assets were frozen. It appears unfortunate that the bill this clause is in has a ‘terror’ label when actually this clause is nothing to do with terror and everything to do with money. However I hope it can all be talked through and sorted.
It is just such a terrible mess, and probably just the tip of a gigantic iceberg which is now rapidly melting. Is this another side-effect of ‘global warming’ that has been hidden until now!
Hey Dave,
here is the problem with the icelandic banking system. It only got de-regulated and privatised in the 90′s, before that they were STATE OWNED! That meant that the government controlled the banks from within. With the privatisation came a regulatory body to oversee the banking, but the banks grew way faster than government could keep up with. In a small country that was expanding so quickly it can sometimes be hard to find skillfull people for the right jobs. And the qualified skillfull people in the field of economics could make a lot more money in the ever expanding (and expanding and expanding) banking world. Icelandic banks came up with constructions that were hard to oversee for the government. As early as 2001 there were articles in the British and Scandinavian press about the troubles that the Icelandic controlling parties were encoutering (this is also where the stories of the influence of the Russian mafia and the Cayman Islands accounts come from) . Even big institutions like the F.B.I, who are now investigating Wall Street bankers, have a hard time finding capable accountants to unravel the structures set up by financial wizards. And in Iceland it was even harder with all this new found wealth. It takes a certain individual, who is willing to take a 75% pay cut compared to the private sector, and in modern day Niceland that individual is hard to find….
Freezing Icelandic assetts seems like an outrageous over reaction that will ensure that the financial situation in Iceland becomes even worse no? Sounds very self defeating considering Gordy wants cold hard cash.
The use of laws passed under terrorism act is especially worrying. We always knew those laws would be misused, but how bizarre to have them misused against Iceland!
Alda,
This is a bit of a personal post, but hope you won’t mind.
Many people across countries are going through a rough patch – whether it is losing 401(k), doubled mortgage rates, frozen bank accounts, lost jobs etc. Yet there are many people in Iceland and out (look at CR blog for example), where people still keep a sense of humor and don’t discourage alternative points of view.
You might want to reconsider your response to people who don’t agree with you :
e.g. your comment to Ad who lost her savings in an Icelandic bank account: “don’t understand why you are airing your concerns here. Seems a waste of time and energy – and bandwidth”
It just puts people off – and the most interesting part of a blog are often the comments, not necessarily the commentary…just my two bits.
This post and most of the anti-British comments are based on a falsehood. The Icelandic authorities are only honouring their banking guarantees to Icelandic citizens. If you know otherwise please provide a link to reputable news source to back up your claim.
As a Briton with accounts with both Icesave and KaupthingEdge I was very worried when I read on the BBC News website that
‘ “The Icelandic government, believe it or not, have told me yesterday they have no intention of honouring their obligations here,” said Mr Darling.’
(http://news.bbc.co.uk/1/hi/business/7658417.stm)
That seems pretty clear to me, and I’m glad that Britain invoked the RIP act to prevent would have been a criminal act by the Icelandic government. Having said that I do have great sympathy with the Icelandic people. It appears that a failure of proper risk management by the banks and proper oversight by their government will leave them with a burden of debt that could take many years to pay off.
I must say that I actually do understand some of the concerns raised by Ad.
I tried today to find out what information has been given to Icesave depositors and it is very little.
Simple questions like when, how much, from whom, how etc. are very hard, or even impossible, to come by.
I think our government (the Icelandic one that is) could have spoken more clearly from the start.
Having said that….Mr. Browns reaction is way over the top and has in no way helped matters. Probably made it worse….
C’m on Kolya, the comments here are not anti-British , but anti-Brown. Both you and Gordon need learn to read between the lines! From everything that comes out of Iceland it is perfectly clear that they are doing everything in their power to ensure that they can repay what is owed. In order to do that they need to sell off what assets there are left. however, if the government of Iceland would come out and say that, you might just well put up an “everything must go” sign and may find itself forced to sell at well below the market price, thus not recouping enough to actually fulfil their commitment.
Sometimes in an international crisis it is better to whisper than to scream. But as Gordon Brown is slipping in the British polls he screamed “wolf” to save his own skin!
ino, I didn’t express any judgement about the way Iceland is handling the crisis. I’m merely pointing out that your government has explicitly guaranteed the *full* deposits of Icelandic citizens, but is apparently not standing by the £16,000 guaranteed that *all* private depositors are legally entitled to.
@ Ino
From everything I’ve read coming out of Iceland I hear that the Iceland government is doing what it can to repay Iceland residents. If there is anything left they will honour their debts towards foreign savers.
The ‘everything must go’ sign was set up when the PM announced the loony currency peg.
Assets will be sold at low prices. Mostly forced sales by angered foreign governments. That could have been avoided, if the PM had asked the foreign governments to assist in the assets sales they were planning anyway, but giving priority to the debtors of the nation where the assets reside (or something similar). That would have given confidence. Instead your PM announced that most of all the savings of Iceland residents are safe, and if we don’t bankrupt ourselves, there will be enough for foreign savers too.
That said. Browns language was despicable.
Alda,
Just a note to say that I greatly enjoyed your radio interview.
To both Kolya and Dave,
like i said “read between the lines”…. PM Haarde can not come out and say that “yes, we will just sell all assets tomorrow and you will get yer money back”, because all interested parties would wait a few days longer for the water to rise and the prices to sink…. The PM did, on several occasions say that Iceland would honour its obligations. (btw, under any bank scheme, that is only the first £16000, even in the UK of 2 weeks ago). During the unfolding of this Greek tragedy in 3 parts the Icelandic government asked for help from its allies (as far as 3 weeks ago) and even publicly stated at a press conference that the help of the British (and Dutch) government would be greatly appreciated. i.e Please give us some breathing space to sort this mess out. But what does Gordon do? He puts some terrorist laws into effect and starts screaming that he is going to sue Iceland? Rather than communicating through diplomatic channels with the Icelandic government to offer his help and support, Gordy does an interview with the BBC on a train with his sleaves rolled up and shows the British voters how tough HE is! Lets be honest, if this had been a German, French or American bank we would not have seen the same actions from the British government. the British government would have been all to willing to come up with a credit line to tie the bank over. The end result will be that indeed the Icelandic government may have to forfeit on its obligation and not out of bad will, but because your prime minister cared more about his own reputation than about English savers!
I have a huge amount of sympathy for the ordinary people of Iceland and what they now seem to be facing and as a Brit I apologise for the heavy handed way our politicians have dealt with this. What can I say they’re politicians it’s what they do…
However it does seem like people in Iceland still haven’t realized quite what a corrupt country it had become over the last few years. Did people really believe that you can magic money out thin air?
It seems that there are a handful of Icelanders who have been personally responsible for the problems you now face. I just hope they are brought to justice.
Take a look at this for instance:
http://uk.youtube.com/watch?v=GSZqqnSdw44
Ino – amen! With all due respect to all previous commenters, this is the best I’ve seen on this post. I think you’ve nailed it.
John and more people here, a lot of us HAD realized this, but our words of warning were not heeded. The left party here has talked about this – money, or rather value doesn’t grow out of nothing, there has to be something of value behind it, it’s no better than free printing of currency. But no, they were backwards, didn’t understand real money, blablablah. (Haven’t heard this ridiculing of my party for the last 2 weeks, weird!). Also a few economists have spoken out, openly and loudly to no avail. Or maybe rather: Well, yes, you’re right, but let’s just make a couple more trillions, and THEN we’ll stop.
Sad thing is that Kaupthing was the only bank that actually had heeded the warnings and had been preparing itself for years (or so my brother-in-law, who was pretty high up in Kaupthing Edge assures me). It might have been in trouble, yes, but which bank in the world now is in no trouble. What kind of civilized country does, when one bank goes down, size another one and drown it, by expecting it to come up with all the money it owns in 10 days? And this bank was partly even covered by British government insurance, not Icelandic, just like loads of other banks in Britain.
My parents lost about 35.000 pounds sterling, which they had invested in Kaupthing stock, their life savings basically, (fortunately they have a bit of money in other places), they aren’t investors-by-trade or anything, just normal people, a music teacher and an electrician who have always lived sparingly. This money they won’t get back, thanks to Mr Brown and company. That doesn’t mean that I’m not sorry about the people MAYBE losing their money on IceSave, because I am. Just maybe you people should wait for a little bit, before lashing out, there is a definite possibility that you will get most or all your money back. Does it do a world of harm, waiting for a week or two to see if the matters will be sorted out, as our government is trying to do?
I’m basically rambling here, sorry, but our knot-in-the-stomach just grows bigger with all the acerbity, I hate being on bad terms with the Brits, and though I definitely realize our banks were foolhardy and their owners totally greedy, I’m very hurt by this treatment and, it seems, deliberate misunderstanding by the British government.
I do understand the Icelandic idignation at the UK Government’s handling of this. But you need to get real.
Another week and another sticking plaster would not have saved Landsbanki or Glitnir. Kaupthing is possibly unfortunate, but innevitable.
You are in the eye of the storm, but we’re not far behind. Until the Icelandic failures, no depositor had lost anything in the UK, and although refusing to give a blanket guarantee, the government were desperate to keep it that way. Every vibe coming from your government was “we asked you for help, you wouldn’t so we going down and it’s every country for itself”. And that as much of the banks’ foreign assets were to be repatriated as soon as possible. Maybe there was a misunderstanding, but the facts are there to see, no matter what the intention.
It’s blatently obvious Iceland will not be able to meet it’s obligations, no matter what are considered obligations or not. The UK is in a pretty desperate situation itself, and to freeze the assets was the right thing to do. The Language was unfortunate, I grant, but the action was taken and now is the opportunity to talk.
Quite how, if agreement isn’t reached, the UK government will legally liquidate the frozen assets I’m not sure. We’ll cross that bridge when we come to it.
Dave;
“Imagine it were the other way round, Foreign banks not repaying icelandic savers. Your government would have seized their assets as well.”
First of all, Kaupthing wasn’t bankrupt, they would have probably survived this credit crunch.
Second, if Bank A from Britain would have gone bankrupt in Iceland leaving Icelanders worried about their deposits, the Icelandic government would NEVER (hardly any country besides UK, Venezuela and Zimbabwe etc.) freeze the assets of Bank B just because Bank B was from Britain, leading to the collapse of Bank B aswell. And now they are talking about freezing the assets of every Icelandic company located in the UK!
Martin;
“Anyone in Iceland know what Bjorgolfur Gudmundsson and his son Thor are up to?
Being a West Ham United fan and what with all this political argy bargy, I was wondering would I be chanting “Gordon Brown’s Claret and Blue Army” at the next match?”
They are probably spending the IceSave deposits profit on luxury items and pouring it in to West Ham. They were the majority shareholders of Landsbanki and therefore also IceBank.
I really can’t understand how people can blame the Icelandic people for all of this. The majority of the Icelandic people didn’t have anything to do with all of this lavish lifestyles of the super rich. Most of us have been struggling to live a modest life, although I must admit that a lot of people lived above their needs, but not everyone.
And the funny thing is that the men that invested the uk deposits into shady investments are all living the high life in London, not Iceland, why aren’t you angry at these men instead?
Icelander,
Only complete idiots blame the Icelandic people, and there really isn’t that many of them. A clique of financial bandits have ruined you, and we have our own too of course.
The only winners will be the litigation lawyers.
These comments are getting heavy. And to be sure, these are grim times. But, Alda, I hope you get to talk about other things in the coming days and weeks. I stumbled across your blog because of the economic crisis, in the way these things happen. I read further and found it fascinating and beautifully written, too.
For what it’s worth, the weather is beautiful here in Scotland and I’m heading out.
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