Iceland

Britain has the world’s biggest fall in property prices after only Latvia

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Britain saw some of the steepest house price falls in the world last year, collapsing by 14.7 per cent, with only Latvia performing worse, research showed yesterday.

More than three-quarters of the 42 countries surveyed recorded falls in the value of property in the final quarter of 2008, compared with just 27 per cent in 2007.

Dubai was the strongest performer, with house prices soaring by nearly 60 per cent in 2008, but much of this gain is expected to be wiped out this year.

Related article: House prices fall, leading to a record annual rate of decline, Halifax reveals (Telegraph)

Latvia saw the steepest slides on an annual and quarterly basis, with prices dropping by 16 per cent in the final quarter of the year and by 33.5 per cent during the whole of 2008.

Iceland also suffered badly, with prices falling by 14 per cent during the year. The US and Ireland were also near the top of the losers’ table with annual price drops of 12.1 per cent and 9.1 per cent respectively.

Read moreBritain has the world’s biggest fall in property prices after only Latvia

Iceland to be fast-tracked into the EU

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Plan for cash-strapped state to become member by 2011

Iceland will be put on a fast track to joining the European Union to rescue the small Arctic state from financial collapse amid rising expectations that it will apply for membership within months, senior policy-makers in Brussels and Reykjavik have told the Guardian.

Ian Traynor on fast-tracking Iceland into the EU and the euro Link to this audio

The European commission is preparing itself for a membership bid, depending on the outcome of a snap general election expected in May. An application would be viewed very favourably in Brussels and the negotiations, which normally take many years, would be fast-forwarded to make Iceland the EU’s 29th member in record time, probably in 2011.

Read moreIceland to be fast-tracked into the EU

Fall of Iceland government tip of the iceberg?

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Two years ago, Iceland was top of the UN living index. Now it is in the frontline of the global economic crisis after the failure of its banks, reports Sophie Morris in Reykjavik


Reykjavik: Iceland must confront the fact that it has been blighted by a man-made disaster

Source: Meltdown: Iceland on the brink (Independent)

When Iceland’s ruling coalition broke apart Monday, it became the first government to fall as a result of the world financial crisis. It may not be the last.

Iceland’s case is unique because the tiny country’s entire banking system collapsed in October, decimating the value of the life savings of most residents on the island. Still, other countries in Europe are experiencing political unrest because of the global economic downturn.

Related articles:
– Iceland sends jumpers to help the UK (BBC News)
– How Iceland went from world’s biggest hedge fund to pariah in in global markets (Guardian)
– Iceland’s government topples amid financial mess (AP)
– Waking up to reality in Iceland (BBC News)

In Latvia last week, a riot ensued after 10,000 protesters marched on parliament. Demonstrations also turned violent in recent weeks in Bulgaria, Lithuania and Greece.

“I think we are still headed sharply downhill in the world economy and the U.S. economy, and I don’t pretend to know how far,” said Ralph Bryant, a former director of the Federal Reserve Board’s Division of International Finance and a senior fellow at the Brookings Institution. “Every country in Europe is troubled by these things.”

“Very little has been done,” he said. “I don’t say nothing has been done, but it’s moving very, very slowly.”

Frustration turns to violence

Iceland’s government fell after the U.S.-educated prime minister, Geir Haarde, couldn’t reach a deal on sharing power with another party in his coalition.

That came after Haarde last week called for elections in May, ahead of those scheduled for 2011, after weeks of protests by Icelanders upset about soaring unemployment and rising prices. Haarde announced Friday that he has cancer and would not seek another term.

Read moreFall of Iceland government tip of the iceberg?

Global Economic Crisis Accelerating

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– Icelandic government becomes first to be brought down by the credit crunch (Daily Mail)

– Iceland’s prime minister resigns (Financial Times)

– Obama Presses Lawmakers on Stimulus, Accountability (Bloomberg):
Jan. 23 (Bloomberg) — President Barack Obama pressed congressional leaders to reach a consensus on an $825 billion stimulus plan, warning the country may be facing an “unprecedented” economic crisis.

– Obama team accuses China of manipulating its currency (Guardian)

– Geithner Hints at Harder Line on China Trade (New York Times):
WASHINGTON — Timothy F. Geithner, who moved closer to confirmation as Treasury secretary on Thursday, told senators that President Obama believed China was “manipulating” its currency, suggesting a more confrontational stance toward that country than under the Bush administration. (More change!)

– Good bank, bad bank all adds up to nationalization (Reuters)

– China prepares for the Year of the Slump (Guardian)

– Sterling plunges to record lows (Financial Times – 23 Jan 2009)

– Recession figures heighten the gloom (Independent)

– Financial crisis: It’s impossible to get any hard facts and figures from British banks (Telegraph)

– Just The Early Stages of Economic and Financial Collapse (The International Forecaster)

– Boston Scientific Founders Bash Baby on Lehman Bets (Bloomberg):
Jan. 23 (Bloomberg) — The men who built Boston Scientific Corp. into the world’s biggest seller of heart stents have dumped $484 million in shares to repay loans after other assets were frozen by the Lehman Brothers Holdings Inc. bankruptcy.

– Bank deposits at ECB drop sharply (Financial Times):
Deposits have now fallen by €171.5bn over the past two days and are almost two-thirds down from the record €315.3bn reached less than a fortnight ago.

– Where You Won’t Shop In 2009 (Forbes)

– Microsoft’s days as an unstoppable force are over (Telegraph)

– Samsung suffers its first quarterly loss (Financial Times)

– GE profit falls 43% to $3.9bn (Financial Times)

– Australian wine exports collapse (Telegraph)

World Agenda: riots in Iceland, Latvia and Bulgaria are a sign of things to come

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Our third global political column explores the start of an age of rebellion over the financial crisis – beginning in Iceland


Icelanders vented their fury at the political class’s handling of the financial crisis by staging angry protests in Reykjavik (Halldor Kolbeins/AFP/Getty Images)

Icelanders all but stormed their Parliament last night. It was the first session of the chamber after what might appear to be an unusually long Christmas break.

Ordinary islanders were determined to vent their fury at the way that the political class had allowed the country to slip towards bankruptcy. The building was splattered with paint and yoghurt, the crowd yelled and banged pans, fired rockets at the windows and lit a bonfire in front of the main door. Riot police moved in.

Related article: Icelanders held over angry demo (BBC News)

Now in the grand sweep of the current crisis, a riot on a piece of volcanic rock in the north Atlantic may not seem to add up to much. But it is a sign of things to come: a new age of rebellion.

The financial meltdown has become part of the real economy and is now beginning to shape real politics. More and more citizens on the edge of the global crisis are taking to the streets. Bulgaria has been gripped this month by its worst riots since 1997 when street power helped to topple a Socialist government. Now Socialists are at the helm again and are having to fend off popular protests about government incompetence and corruption.

In Latvia – where growth has been in double-digit figures for years – anger is bubbling over at official mismanagement. GDP is expected to contract by 5 per cent this year; salaries will be cut; unemployment will rise. Last week, in a country where demonstrators usually just sing and then go home, 10,000 people besieged parliament.

Iceland, Bulgaria, Latvia: these are not natural protest cultures. Something is going amiss.

The LSE economist Robert Wade – addressing a protest meeting in Reykjavik’s cinema – recently warned that the world was approaching a new tipping point. Starting from March-May 2009, we can expect large-scale civil unrest, he said. “It will be caused by the rise of general awareness throughout Europe, America and Asia that hundreds of millions of people in rich and poor countries are experiencing rapidly falling consumption standards; that the crisis is getting worse not better; and that it has escaped the control of public authorities, national and international.”

Read moreWorld Agenda: riots in Iceland, Latvia and Bulgaria are a sign of things to come

IMF Needs Its Own Rescue Package Now

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Turkey is reported to be in negotiations with the International Monetary Fund for a $40 billion loan. Very shortly, the Baltic States and at least a dozen developing countries will be filing for IMF handouts. But how will the venerable lender of last resort fund itself?

According to a fact sheet posted on its website in October, the IMF had $200 million available for emergency loans to the third-world, and another $50 billion in “additional resources”. But the IMF’s liquidity is rapidly dwindling. Between the crisis facilities concluded with Ukraine, Hungary, Serbia, Iceland and Pakistan, and the expected spate of new loan requests, the IMF should be running out of money within the first quarter of next year. Quite simply, unless the rich nations (including American tax-payers) can add to the IMF’s funding capabilities, the global recession will cause unprecedented havoc, chaos, hunger and turmoil in the world’s poverty pockets.

Read moreIMF Needs Its Own Rescue Package Now

Stunned Icelanders Struggle After Economy’s Fall

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A woman waited last month for a bank to open in Reykjavik, where everyone has been affected by the financial failure.

REYKJAVIK, Iceland – The collapse came so fast it seemed unreal, impossible. One woman here compared it to being hit by a train. Another said she felt as if she were watching it through a window. Another said, “It feels like you’ve been put in a prison, and you don’t know what you did wrong.”

This country, as modern and sophisticated as it is geographically isolated, still seems to be in shock. But if the events of last month – the failure of Iceland’s banks; the plummeting of its currency; the first wave of layoffs; the loss of reputation abroad – felt like a bad dream, Iceland has now awakened to find that it is all coming true.

It is not as if Reykjavik, where about two-thirds of the country’s 300,000 people live, is filled with bread lines or homeless shanties or looters smashing store windows. But this city, until recently the center of one of the world’s fastest economic booms, is now the unhappy site of one of its great crashes. It is impossible to meet anyone here who has not been profoundly affected by the financial crisis.

Overnight, people lost their savings. Prices are soaring. Once-crowded restaurants are almost empty. Banks are rationing foreign currency, and companies are finding it dauntingly difficult to do business abroad. Inflation is at 16 percent and rising. People have stopped traveling overseas. The local currency, the krona, was 65 to the dollar a year ago; now it is 130. Companies are slashing salaries, reducing workers’ hours and, in some instances, embarking on mass layoffs.

“No country has ever crashed as quickly and as badly in peacetime,” said Jon Danielsson, an economist with the London School of Economics.

Read moreStunned Icelanders Struggle After Economy’s Fall

IMF may need to “print money” as crisis spreads

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The International Monetary Fund may soon lack the money to bail out an ever growing list of countries crumbling across Eastern Europe, Latin America, Africa, and parts of Asia, raising concerns that it will have to tap taxpayers in Western countries for a capital infusion or resort to the nuclear option of printing its own money.

IMF's work in countries such as Turkey is only just beginning
IMF’s work in countries such as Turkey is only just beginning

The Fund is already close to committing a quarter of its $200bn (£130bn) reserve chest, with a loans to Iceland ($2bn), Ukraine ($16.5bn), and talks underway with Pakistan ($14.5bn), Hungary ($10bn), as well as Belarus and Serbia.

Neil Schering, emerging market strategist at Capital Economics, said the IMF’s work in the great arc of countries from the Baltic states to Turkey is only just beginning.

“When you tot up the countries across the region with external funding needs, you get to $500bn or $600bn very quickly, and that blows the IMF out of the water. The Fund may soon have to start calling on the West for additional funds,” he said.

Brad Setser, an expert on capital flows at the Council for Foreign Relations, said Russia, Mexico, Brazil and India have together spent $75bn of their reserves defending their currencies this month, and South Korea is grappling with a serious banking crisis.

“Right now the IMF is too small to meet the foreign currency liquidity needs of the larger emerging economies. We’re in a dangerous situation and there is the risk of extreme moves in the markets, as we have seen with the Brazilian real. I hope policy-makers understand how serious this is,” he said.

The IMF, led by Dominique Strauss-Kahn, has the power to raise money on the capital markets by issuing `AAA’ bonds under its own name. It has never resorted to this option, preferring to tap members states for deposits.

The nuclear option is to print money by issuing Special Drawing Rights, in effect acting as if it were the world’s central bank. This was done briefly after the fall of the Soviet Union but has never been used as systematic tool of policy to head off a global financial crisis.

“The IMF can in theory create liquidity like a central bank,” said an informed source. “There are a lot of ideas kicking around.”

Read moreIMF may need to “print money” as crisis spreads

Iceland Central Bank Raises Key Interest Rate to 18%

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Pedestrians leave the Central Bank of Iceland in Reykjavik, Iceland, on Oct. 7, 2008. Photographer: Arnaldur Halldorsson/Bloomberg News

Oct. 28 (Bloomberg) — Iceland’s central bank unexpectedly raised the benchmark interest rate to 18 percent, the highest in at least seven years, after the island reached a loan agreement with the International Monetary Fund.

Policy makers raised the key rate by 6 percentage points, the Reykjavik-based bank said in a statement today, taking the rate to the highest since the bank began targeting inflation in 2001.

“I don’t think 6 percentage points will make the krona any more attractive,” said Henrik Gullberg, a strategist at Deutsche Bank AG in London. “Basically what we’re seeing is a complete liquidation of everything in emerging markets, and Iceland, even in the emerging-market universe, is very vulnerable. Six percent isn’t worth a lot if the currency drops another 15 percent.”

The central bank is raising rates as Iceland, the first western nation to seek financial help from the IMF since the U.K. in 1976, faces an economic contraction, coupled with possible hyperinflation and rising joblessness. The economy will shrink as much as 10 percent next year, the IMF forecasts. Iceland will receive about $2.1 billion from the Washington-based fund, according to a deal struck on Oct. 24.

Read moreIceland Central Bank Raises Key Interest Rate to 18%

German banks lent most to Iceland borrowers: BIS

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FRANKFURT (Reuters) – German banks lent the most to Icelandic borrowers and were owed $21 billion before the recent financial storm swept markets, according to figures released by the Bank for International Settlements.

The research shows that German banks, as well as handing out almost one third of loans in the Nordic outpost, are the most exposed to some of Europe’s fragile economies, such as Spain and Ireland.

In a snapshot taken at the end of June, Germany’s banks lent far more in crisis-stricken Iceland than had rivals in Britain, who were owed just $4 billion, or Iceland’s neighbor Sweden with less than $400 million.

Despite being Europe’s biggest economy, Germany’s levels of lending to countries such as Iceland are disproportionately high.

And in the week that Berlin launched a rescue plan for its banks, the first signs were emerging that lending at the height of the Icelandic bubble had come back to haunt Germany.

BayernLB, a state-backed regional lender that was the first to seek government help this week, said it expected to write off 800 million euros ($1.03 billion) of its 1.5 billion euro exposure to the tiny island state.

Read moreGerman banks lent most to Iceland borrowers: BIS

CDO Cuts Show $1 Trillion Corporate-Debt Bets Toxic

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Oct. 22 (Bloomberg) — Investors are taking losses of up to 90 percent in the $1.2 trillion market for collateralized debt obligations tied to corporate credit as the failures of Lehman Brothers Holdings Inc. and Icelandic banks send shockwaves through the global financial system.

The losses among banks, insurers and money managers may spark the next round of writedowns on CDOs after $660 billion in subprime-related losses. They may force lenders to post more reserves against losses after governments worldwide announced $3 trillion in financial-industry rescue packages since last month, according to Barclays Capital.

“We’ll see the same problems we’ve seen in subprime,” said Alistair Milne, a professor in banking and finance at Cass Business School in London and a former U.K. Treasury economist. “Banks will take substantial markdowns.”

The collapse of Lehman Brothers, Washington Mutual Inc. and the three banks in Iceland prompted Susquehanna Bancshares Inc., a Lititz, Pennsylvania-based lender, to lower the value of $20 million in so-called synthetic CDOs by almost 88 percent last week.

Read moreCDO Cuts Show $1 Trillion Corporate-Debt Bets Toxic

Iceland shares plunge 76% as trading resumes

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Shares on the Reykjavik stock exchange plunged by 76 per cent when trading resumed after three days of closure as Iceland’s economy continued to teeter on the brink of collapse.

Shares later recovered to leave the OMX Iceland 15 index down 47 per cent in morning trade.

Market officials said the astounding figure was misleading since the country’s three largest banks – Kaupthing, Landsbanki, Glitnir – which had accounted for three quarters of the exchange’s value, had been removed from the index after they were nationalised last week.

Other financial stocks would remain on the index but would not resume trading until Iceland’s Financial Services Authority gave the green light, the bourse said.

Not counting financial shares, the main index had shed 5 per cent in early afternoon trading.

Trading in three other financial stocks – Straumur-Burdaras, Reykjavik Savings Bank (Spron) and Exista – remain suspended.

The exchange had been suspended since Thursday with the last official trade coming on Wednesday.

Read moreIceland shares plunge 76% as trading resumes

Icelandic Shoppers Splurge as Currency Woes Reduce Food Imports

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Reykjavik, Iceland, on Monday, Oct. 13, 2008. After a four-year spending spree, Icelanders are flooding the supermarkets one last time, stocking up on food as the collapse of the banking system threatens to cut the island off from imports. Photographer: Arnaldur Halldorsson/Bloomberg News

Oct. 13 (Bloomberg) — After a four-year spending spree, Icelanders are flooding the supermarkets one last time, stocking up on food as the collapse of the banking system threatens to cut the island off from imports.

“We have had crazy days for a week now,” said Johannes Smari Oluffsson, manager of the Bonus discount grocery store in Reykjavik’s main shopping center. “Sales have doubled.”

Bonus, a nationwide chain, has stock at its warehouse for about two weeks. After that, the shelves will start emptying unless it can get access to foreign currency, the 22-year-old manager said, standing in a walk-in fridge filled with meat products, among the few goods on sale produced locally.

Read moreIcelandic Shoppers Splurge as Currency Woes Reduce Food Imports

Trading in Icelandic banks halted pending announcement

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Trading in the shares of Icelandic banks was suspended in Reykjavik ahead of an announcement and because of concerns over the pricing of their shares.


Icelandic Prime Minister Geir Haarde is facing a financial meltdown

The suspension covers trading in all financial instruments issued by Kaupthing, Landsbanki, Glitnir, the Icelandic lender bailed out by the government after its short-term funding dried up, Straumur-Burdaras, Exista and Spron.

Iceland’s Financial Services Authority requested the move, the OMX Nordic Exchange in Iceland said. The exchange said: “This decision is made in order to safeguard the equality of investors while awaiting an announcement.”

Iceland’s prime minister Geir Haarde has confirmed the country’s major banks have agreed to “sell their foreign assets and decrease their activity abroad”, as pressure mounted for the government to secure a rescue deal for its ailing financial system.

Read moreTrading in Icelandic banks halted pending announcement

Stricken Iceland sends out financial SOS

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Economy is in turmoil as currency collapses and inflation soars

Iceland was seeking the financial help of the US and Scandinavian countries last night as politicians and businessmen scrambled to save the country’s economy.

Officials were locked in meetings for most of the weekend, with the Government hoping to come to some sort of resolution before stock markets open this morning. The country’s banking problems led to the nationalisation last week of Glitnir, one of its largest lenders, as depositors pulled out their funds.

Read moreStricken Iceland sends out financial SOS

Iceland’s economy on brink as lender falters

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ICELAND’S Kaupthing Bank is headquartered in Reykjavik, about 1800 kilometres from the City of London, but the financial volcano threatening to erupt on the island could send shockwaves down every high street in Britain.

The bank, with liabilities several times larger than Iceland’s gross domestic product, runs accounts for 150,000 Britons. It is also a key lender to some of Britain’s biggest entrepreneurs, including the restaurateur Gordon Ramsay and the property tycoon Robert Tchenguiz, and bankrolls big retail chains such as House of Fraser and Debenhams.

At the weekend the Icelandic Government was desperately trying to stitch together a package that would restore confidence in the bank and prop up the ailing economy of Iceland – with a population of 320,000 – which is teetering on the brink after years of over-expansion by its banks.

Most of the British depositors in Kaupthing are safe – savings of up to £50,000 ($114,000) are guaranteed by the British Government. But in Iceland the population is panicking. People are rushing to the banks to check that their savings are still there, and stockpiling provisions in case the country’s rampant inflation heads further out of control.

Iceland’s complicated financial interests are so interconnected – with a small number of investors owning cross-stakes in each other’s institutions – that the worst fear is a domino effect that will lead to the collapse of the country’s economic system, potentially taking with it many prominent British chains.

Read moreIceland’s economy on brink as lender falters