The Situation in Iceland - Icelandic Government Falls

Politicians count votes and if enough look well and truely annoyed some may heed. Indeed it may embolden a few. If only people could get it into their heads that tens of thousands is being taken out of each and every persons pockets to prop up what exactly?

Bloomberg reports that Iceland's foreign and local currency ratings have been downgraded - whatever that means - they will find it harder and harder to get loans from abroad now ?

http://www.bloomberg.com/apps/news?pid=20601085&sid=a5zEsraUpMLQ&refer=europe

Quote :

“The downgrade reflects Moody’s view that the Icelandic government’s financial strength has been significantly damaged by the banking and currency crisis,” Kenneth Orchard, a senior analyst at Moody’s in London, said in the statement.

Iceland last month got approval for an International Monetary Fund-led loan worth as much as $5.3 billion. The country will be granted an additional $6.3 billion from the U.K., Germany and the Netherlands to cover deposit guarantees at failed Icelandic lender Landsbanki Islands hf. That means the island’s population of about 320,000 must shoulder debt worth more than $11 billion.

That's about 35k for every man woman and child in the place.

What's a "Partial free-float" and "capital restrictions" ? Preventing people from selling their investments ? Freezing trading in Icelandic stocks ?

Quote :

The currency has lost about two thirds of its value this year. The krona gained 4.8 percent against the euro to trade at 178.26 as of 1:19 p.m. in Reykjavik. Offshore, the krona traded at about 330 per euro earlier this week, according to TD Securities in London.

The central bank said it returned the currency to a partial free float today after it last week imposed capital restrictions preventing foreigners from exiting krona-denominated investments.

And we think we're bad here with our public finances: (we're not, sure we're not ?)

Quote :

Most Icelanders have car loans in foreign currency, while soaring inflation, which may surge as high as 75 percent in coming months according to Danske Bank A/S, means households’ index- linked mortgage payments will jump.

“The impact of the crisis on the economy, the restructuring of the banking sector and the task of stabilizing the currency will force the government to assume sizeable amounts of debt that will weigh on the public sector balance sheet for many years,” Orchard said.

The National Debt has suddenly mushroomed over there too - it's like us owing 200 billion all of a sudden.

Quote :

Loans taken on by Iceland’s government will bring national debt to 109 percent of gross domestic product by the end of next year, the government estimates.

The country’s three biggest banks failed under the weight of their debt in October, precipitating the collapse of the currency and sending the economy into a recession. Gross domestic product may contract as much as 10 percent next year, the IMF estimates.

They'll end up in the Eurozone soon surely to cod.

Auditor #9 wrote:

They'll end up in the Eurozone soon surely to cod.

I wonder what's in this for the EU? Are there even any cod left?

coc wrote:

Auditor #9 wrote:

They'll end up in the Eurozone soon surely to cod.

I wonder what's in this for the EU? Are there even any cod left?

I don't know about the fish but maybe there's still plenty of reason to put on the oilskins and blankets

Quote :

Reykjavik pins recovery hopes on energy

http://www.upstreamonline.com/live/article167658.ece

Johannesson said Iceland planned to push forward with its first offshore oil and gas licensing round, due by the middle of 2009, although he did not rule out delays of "several months".


Johannesson said Iceland remained on track to offer 100 licences in the North Dreki area, to the country's north-east, by May next year. North Dreki has a similar geological profile to east Greenland, which hosts several hydrocarbons finds.

Sold!

coc wrote:

Sold!

100s of licences - how much would one of them cost ? Maybe they'll have 15 billion worth of oil and gas plus profits - that's all they need to cover their debts now. After that they can continue the fishing.

It's a bit late for this but ah well ... the change in what it costs to insure against Govt. default in these countries. The cost is for $10,000 debt for 5 years .. Note the change for Ireland.

http://seekingalpha.com/article/109270-country-default-risk-rises-across-the-board

And now for the late eveing Icelandic news with Channel #9. Where the hell is all the Icelandic bank money loans going ? Maybe here --

• MILLIONS of pounds of Lancashire taxpayers’ money invested in an Icelandic bank has not been returned on time. The three-month, £10million investment by Lancashire County Council in the Landsbanki bank, which has been taken over by the Icelandic government, was due to be returned on Wednesday.

• Barnet politicians clash over Iceland bank investments
  Barnet Conservatives have lashed out at Liberal Democrat councillors for being hypocritical in the dispute over Icelandic bank investments.
  Liberal Democrat leader Jack Cohen had previously launched scathing attacks on the Conservatives’ financial management, following the loss of £27.4 million of Barnet Council money deposited in Glitnir and Landsbanki banks.
  But the Tories have hit back, claiming 15 Liberal Democrat councils had £113m locked up in Iceland.
  

• STOCKHOLM, Dec 5 (Reuters) - Iceland's Straumur-Burdaras (STRB.IC: Quote, Profile, Research, Stock Buzz) said on Friday it had closed bank financing of 133 million euros ($169 million) and will now be able to pay a 200 million euro syndication due on Dec. 9.
  

• The UK's depositor protection scheme urged 24,000 savers with failed Icelandic internet bank Icesave to claim their compensation as soon as possible. The Financial Services Compensation Scheme (FSCS) said it had now contacted nearly all of the group's 214,713 customers offering them compensation and had paid out £3.2 billion.
  

• Well, maybe not here
  The government has refused to make a special case to help a children's hospice which had £5.7m invested in one of the collapsed Icelandic banks. Naomi House in Sutton Scotney, Hampshire, had the cash tied up with Kaupthing Singer and Friedlander.

Quote :

Icelandic krona strengthens on first trading day - Icenews

http://www.icenews.is/index.php/2008/12/05/icelandic-krona-strengthens-on-first-trading-day/

Geir H. Haarde, the Icelandic Prime Minister, said that hope was rekindled yesterday when the Icelandic krona was traded on the international market for the first time since the banking collapse in early October, according to MBL.is.

The value of the krona increased by an average of 8 percent on the interbank market in yesterday’s trading which New Glitnir, New Kaupthing and New Landsbanki were instructed to carry out.

A long term strengthening of the Icelandic currency would help bring stability to Iceland’s badly shaken economy and bring down inflation, currently running at nearly 20 percent.

Haarde told journalists that the krona had been vastly undervalued, and that the international market seems to agree.

On the separate issue of the desired pay cut for MPs and other elected officials; Haarde said he hoped a bill making such a move possible would be introduced today – meaning it could be debated in parliament as early as next week.

Propaganda or a geniune reflection of an international perception of the Icelandic people to pay ? Unfortunately half of the 18-24 year olds interviewed out of a survey of 1100 recently said they were going to emigrate to Norway or Denmark where employment is less than 2%.

Quote :

Danish unemployment is 1.6 percent. In Norway, the jobless rate rose to 1.8 percent last month from 1.7 percent the previous month. Norway's Labor and Welfare Administration expects unemployment to stay below 3 percent over the next two years

http://www.iht.com/articles/2008/12/05/business/iceland.php

Which is a nice little IHT article chock full of little stats about Iceland with a little bit of history. It says that inflation is at 17% now even though some commentators on youtube who I've asked have said that prices aren't going up instead the petrol price is actually plummetting...

It would be interesting to look at Denmark and Norway a bit more.

I don't know how bad Iceland is getting cactus. They could undergo a big tourist boom over the next few years now that they are slashing their prices. Ireland won't be far behind I'm sure - what else have we here ? I just can't wait to see the Cliffts of Moher having to cut their criminally exorbitant charges of 8€ to park your car and go for a walk on some of the most beautiful cliffts in the whole wide world.

They have to pay their €37 Million bill for the heap of s* they buried in the field beside the cliffts themselves, I suppose.

http://www.timesonline.co.uk/tol/travel/news/article5314068.ece

Quote :

Iceland is set to become one of travel's hottest destinations in 2009, with prices for summer holidays cut in half.

The collapse in the country's economic system has seen Iceland's travel industry cut prices to encourage tourists.

According to Google, searches for travel to Iceland have risen by more than 60 per cent in the past two months, with most inquiries coming from the UK.

One tour operator, Cox & Kings, today put on sale a three-night city break at the Hotel Frón in Reykjavik from £350pp including flights.

(The Icelandic stockmarket did drop 40% today though according to Bloomberg )

Up to their necks in the biggest budget deficit in their history of $1.4billion -Bloomberg, in the 19-hour long nights, the Icelanders are keeping themselves from the wolves by selling each other second hand clothes and DVDs, by drinking the local beers and by eating horsemeat. Ugh, how disgusting.

Channel 4 News: Iceland feels chill of recession

Quote :

Iceland is paying the price for its role in adding to the world credit crunch by being forced into an austerity Christmas.

Among the things now selling briskly in the capital Reykjavik are horse meat, second-hand clothing and used DVDs of "The Sound of Music."

Thrift is the new mantra in a country trapped in economic deep freeze with rising unemployment, soaring prices and a paralysed banking system.

"Before, you didn't think about what you were buying, but now we've been woken up," said Holmfridur Kristinsdottir, who sells such delicacies as dried fish and pungent chunks of fermented shark at Reykjavik's flea market. "When we buy beer now, we buy Icelandic beer - it's cheaper."

But looking on the bright side - 19-hour-long days in summer and signing up with the EU ! What does it mean for us ? Fish ? A devaluing of the Euro too but only a slight one - Iceland isn't East Germany.

BRUSSELS, Dec 11 (Reuters) - Iceland may apply for European Union membership early next year, EU Enlargement Commissioner Olli Rehn said on Thursday.

One third of the 300,000 population of Iceland plans to emigrate.

- this is a very good article from which we might learn something relevant to Ireland.
http://www.voxeu.org/index.php?q=node/2549

It seems, from what is said in the article, inevitable that Iceland will have to default on its debts, which amount to more than 100% of GDP - the author says that very damaging mistakes in dealing with the crisis were made both by the Icelandic authorities and by the British Government in using anti-terror law to freeze their assets and bankrupt the last viable Icelandic bank.

Apparently, even going bankrupt is something you can do the right or the wrong way.

For the future, the prospect of total abandonment of Iceland is not unimaginable, as it may be the only way that Icelanders can escape the impossible burden of debt.

you know, i was against debt forgiveness when it was mooted as a solution to the poverty in africa, south america and asia. now that western and developed countries appear to be tottering on the brink, i'm reviewing my thoughts on the matter. does that make me a bad person?

i resented being lectured by w@nkers who did not pay tax on how money owed to our country (which would have to be made up by our taxes) should be cancelled. also, the previous round of debt forgiveness in the 70's did not lead to the correct lessons being learnt about fiscal prudence (moral hazard and all that!).

now i feel differently, i think that we should not cripple developing countries with massive annual repayments and i think that the wholescale abandonment of territories by communities to avoid debt is a crime against humanity.

we have to draw a line under the current global mess and move on by focusing on real business (manufacturing etc) and totally banning derivatives (is it not ironic that the instruments designed to protect corporates from risk have actually brought about the complete collapse of the global economies.

This is very sad I think. It is going to smash Icelandic society to the core. Right down to families and kids and their little circles of friends.

Yet the 'I'm all right Jack' assholes won't give a damn. When will these pricks learn that it IS possible to promote business and competition in the context of a strong and equitable society ? That after all, is most likely what the natural balanced position is.

By equitable, I don't mean free handouts, I mean the same rules for all.

Yet the balance has to be heavily tipped in favour of the parasitic swine. Because they can do that. Our governments let them do that , even incentivise them to do that.

The lack of vision for society in the world today among our leaders is a shocking disgrace.

Iceland certainly is in a very bad shape. The economy is going to contract by about 1% this year and about 10% next year. The unemployment rate is due to skyrocket from next to nothing now to 6% next year. Iceland truly is in a very deep hole at the moment. We could easily organise a bailout of the State of Iceland. Their population is less than that of Cork. Luxembourg has a larger economy than them. Their GDP is about 20 billion dollars. That's less than a tenth of ours so it is very achievable.

Jaysus, don't they have rights to 1/6 arctic fossil fuel reserves?? Why isn't there a queue to bail these guys out??

expat girl wrote:

Jaysus, don't they have rights to 1/6 arctic fossil fuel reserves?? Why isn't there a queue to bail these guys out??

They do and that's perhaps why Russia stepped forward to help them out. I think we should help them out as well since we could help each other to restructure and revive our economies.

And they have unlimited free hot water

zakalwe wrote:

... i think that we should not cripple developing countries with massive annual repayments and i think that the wholescale abandonment of territories by communities to avoid debt is a crime against humanity ...

What do you mean by this?

cactus flower wrote:

And they have unlimited free hot water

It would be in our mutual interest. We can control wind, wave and geothermal energy alongside the fossil fuels, fisheries and sealanes of the North Atlantic. We may be small, but we're well positioned!

From yesterday:

Quote :

Windows broken at Iceland's financial regulator

http://www.washingtonpost.com/wp-dyn/content/article/2008/12/18/AR2008121802564.html

REYKJAVIK, Iceland -- A small group of demonstrators smashed windows at the offices of Iceland's financial regulator Thursday - the latest in a series of demonstrations in the financially stricken island nation.

Some 50 or so people gathered out front of the Financial Supervisory Authority Thursday to demand the resignation of the organization's top officials. Some threw rocks, shattering windows.

The group dispersed as police arrived and there were no arrests.

Protests have been a fixture of Iceland's political scene since the country's debt-laden economy collapsed spectacularly earlier this year under the impact of the credit crunch. Unemployment has risen and prices have soared.

On Wednesday, a group of about 100 people marched into the headquarters and two branches of Iceland's recently nationalized Landsbanki bank to demand the resignation of the institution's board. On Tuesday another crowd surrounded a building where Iceland's cabinet was due to meet. Ministers had to enter through the back door as demonstrators jeered.

On Wednesday, media magnate Jon Asgeir Johannesson, one of Iceland's richest men, was hit by a snowball when protesters heckled him outside his upscale hotel in Reykjavik.

"We wanted to have a word with him as he was walking out," Gudjon Heidar Valgardsson, one of the protesters, told Icelandic media. "I asked him whether he had censored the press. When he refused to answer, I said 'censor this' and threw a snowball at him."

Johannesson was unhurt by the incident.

On the other hand the IMF say the country is already making progress with the recovery by getting the Krona stabilised first. The extent of the loans they need seem to be less than they feared too. Looks like the 18% interest there is working a treat.

Quote :

Iceland making progress on economic recovery, IMF says

http://www.turkishpress.com/news.asp?id=255943

"Iceland's IMF-supported program is advancing well. The key near-term objective of stabilising the krona is being met," the head of the International Monetary Fund's mission to Iceland, Poul Thomsen, said in a statement.

The IMF fast-tracked a 2.1 billion dollar loan to Iceland on November 19, the first Western European country to be rescued by the IMF since Britain in 1976, and thousands of people have taken to the streets in protest.

The Nordic countries also granted Iceland a loan of 2.5 billion dollars.

Icelandic Prime Minister Geir Haarde had previously estimated the cost of the financial crisis at around 85 percent of gross domestic product (GDP), but Thomsen said it was now expected to be only around 20 to 30 percent of GDP.

Iceland's GDP in 2007 totalled 1,293 billion kronur (7.9 billion euros, or 11.07 billion dollars as of Thursday's exchange rate).

The IMF's estimate would therefore put the cost of the crisis at about 1.58 billion to 2.37 billion euros, or 2.31 billion to 3.46 billion dollars, according to AFP's calculation.

Thomsen also said that Iceland's "judicious" monetary policy had set the stage for an appreciation of the krona following the liberalisation of controls on current account transactions and the restoration of the interbank foreign exchange market.

"As conditions permit, the focus of monetary policy will soon turn to developing a comprehensive and well-sequenced plan to lift capital controls and reduce interest rates," he said.

Iceland's key interest rate is currently at 18 percent, the highest in Europe.

The IMF has already paid out some 827 million dollars to Reykjavik, and the rest will be paid out in eight intervals of 155 million dollars provided Iceland meets its quarterly IMF reviews.

The IMF said at the end of October it expected the island's economy to contract by a massive 10 percent next year.

Unemployment jumped from 3.3 percent in November to 5.4 percent in December, according to the Icelandic Labour Directorate.

The IMF said a mission would visit Iceland in early February to conduct the first formal review under the programme.

An article on the IMF involvement in Iceland.

http://www.wsws.org/articles/2008/nov2008/icel-n29.shtml

Things are heating up in Iceland: LINK.