Marketing
The Moćni Albion
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The New York Times
November 2, 2008
Iceland, Mired in Debt, Blames Britain for Woes
By SARAH LYALL
LONDON — No one disputes that Iceland’s economic troubles are largely the country’s own fault. But there may be more to the story, at least in the view of Iceland’s government, its citizens and even some outsiders. As grave as their situation already was, they say, Britain — their old friend, NATO ally and trading partner — made it immeasurably worse.
The troubles between the countries began three weeks ago when Britain took the extraordinary step of using its 2001 antiterrorism laws to freeze the British assets of a failing Icelandic bank. That appeared to brand Iceland a terrorist state.
“I must admit that I was absolutely appalled,” the Icelandic foreign minister, Ingibjorg Solrun Gisladottir, said in an interview, describing her horror at opening the British treasury department’s home page at the time and finding Iceland on a list of terrorist entities with Al Qaeda, Sudan and North Korea, among others.
In a volatile economic climate, in which appearance matters almost as much as reality, being associated with terrorism is not a good thing.
“The immediate effect was to trigger an almost complete freeze on any banking transactions between Iceland and abroad,” said Jon Danielsson, an economist at the London School of Economics. “When you’re labeled a terrorist, nobody does business with you.”
The Icelandic prime minister, Geir H. Haarde, accused Britain of “bullying a small neighbor” and said the action was “very out of proportion.” In a recent speech in Beijing, Sir Howard Davies, a former deputy governor of the Bank of England and now the director of the London School of Economics, said that Britain had used a “beggar thy neighbor” approach to Iceland.
And an online petition signed so far by more than 20 percent of Iceland’s population said the British prime minister, Gordon Brown, had sacrificed Iceland “for his own short-term political gain,” thereby turning “a grave situation into a national disaster.”
Iceland’s financial problems had been brewing for some time. This past spring, the country’s banks, bloated with foreign deposits and debts, began to falter. This fall, as the financial crisis deepened, the government took over two of the country’s three largest banks.
Britain’s government, alarmed about the tens of thousands of accounts held by its citizens, companies, local governments and charities, froze the British assets of one of the failed banks, Landsbanki. It also seized the assets of Kaupthing Singer & Friedlander, the British subsidiary of another Icelandic bank, Kaupthing.
“The Icelandic government, believe it or not, told me yesterday that they have no intention of honoring their obligations here,” Alistair Darling, the chancellor of the Exchequer, declared the day Britain seized the assets.
The Icelandic government disputed that, saying it was merely asking for time to make good on its obligations.
Whatever the case, reaction was immediate and severe, particularly when Mr. Brown said the following day — inaccurately — that “we are freezing the assets of Icelandic companies in the U.K. where we can.”
Iceland’s ambassador to Britain, Sverrir H. Gunnlaugsson, said in an interview that this statement was particularly damaging. “There was a perception in the U.K. press and among suppliers that everything Icelandic had been frozen,” he said. “The word was put out belatedly that this was not the case.”
Icelanders say that it is now nearly impossible to get foreign currency into or out of the country. Many banks have refused even to transfer money to Iceland. Importers are having difficulty paying their foreign bills, and exporters are having trouble getting paid by their foreign customers.
Many people in Iceland are also furious about what happened to Kaupthing Singer & Friedlander. The British government’s seizure of its assets precipitated the immediate collapse of its parent bank, Kaupthing, which the Icelandic government had been propping up and had hoped would survive.
“Kaupthing was the last, best hope of the Icelandic banking system, and it was killed there and then,” Andres Magnusson, an editorial writer for Icelandic Financial News, said in an interview. “This really was the last straw. A lot of Icelanders are asking, ‘Excuse me: who’s the terrorist here?’ ”
The bank’s collapse had repercussions beyond Iceland and Britain. More than 8,000 depositors, individuals and businesses, hold Kaupthing Singer & Friedlander accounts worth about $1.34 billion on the Isle of Man, money they cannot get their hands on now — and may never.
Iceland is in line to receive a $2 billion loan from the International Monetary Fund and is talking to other Scandinavian countries. It is not entirely friendless: it was recently offered a loan of about $52 million from the tiny Faroe Islands, for which it is very grateful, Mr. Gunnlaugsson said.
The Icelandic government has pledged to make good on domestic bank accounts. But it is still fighting with Britain over how much it is obliged to pay — and how much it can afford to pay — to compensate customers with accounts in Icesave, Landsbanki’s British branch.
Under European regulations, Iceland is obliged to pay 20,000 euros (about $25,000) to each individual account holder in Icesave. But the total, Ms. Gisladottir, the foreign minister, said, would amount to about 600 billion Icelandic kronur — only about $5 billion at today’s collapsed exchange rate but fully 60 percent of Iceland’s gross domestic product.
“The compensation that we would give would be twice as much per head as the reparations Germany faced in the Treaty of Versailles after the First World War,” she said. “That is something we cannot afford.”
The British government has guaranteed that individual British account holders will be compensated fully, which is why it is seeking to wrest as much money as possible from Iceland. But no such guarantees have been made to the British companies, local governments, charities and universities — including Oxford and Cambridge — that had Icesave accounts. That figure alone is well over a billion dollars.
Iceland’s key interest rate now stands at 18 percent. The currency, the krona, has declined 44 percent in the last year. Mr. Danielsson, the economist, visited the country recently and found the situation grave.
“Salaries are frozen, food prices are shooting up and they are laying off people left, right and center,” he said. “Companies are going bankrupt all over the place. It’s unimaginable how bad it is.”
Ms. Gisladottir said Britain’s decision had sent Iceland back some 30 or 40 years, to a time when it was an isolated, poor country, dependent mostly on its fishing trade.
“This is a major crisis,” she said. “We haven’t been in this situation for, probably, ever. We cannot solve it alone. We need solidarity from partners, from friendly countries, and we thought the U.K. was one of them.”
Post je objavljen 02.11.2008. u 23:59 sati.