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Scandinavia Central Banks Come to Iceland’s Rescue
May 17, 2008 5:05 AM
by
findingDulcinea Staff
The central banks of Sweden, Norway and Denmark have offered Iceland a credit-line of 1.5 billion euros to shore up Iceland's troubled currency and economy.
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After a decade of solid growth, Iceland's economy recently weakened, and global currency traders placed speculative bets on the fall of Iceland's currency, driving up the cost for Iceland's imports. The central banks of Norway, Sweden and Denmark have offered a 1.5 billion euro credit-line to Iceland to enable it to shore up its currency and discourage speculation against it.
According to an article in The New York Times in April, the sub-prime mortgage crisis has thwarted Iceland’s “long economic boom.”
Some say Iceland has invested carelessly, although others blame foreign speculators. Either way, Iceland faces “a collapsing currency, rising inflation, double-digit interest rates and predictions of its first recession since 1992.” Many Icelanders believe that hedge funds have been trying to make a profit by sabotaging Iceland’s banks.
Iceland was “built on debt” and critics have compared the country to a “toxic hedge fund,” according to U.K. newspaper The Guardian. Although a small country, Iceland could have a huge impact on world markets if it experiences an economic meltdown.
According to EconomicPrincipals.com, Iceland borrowed large sums of foreign currency “to build electricity capacity at home and invest in European and American markets.” Icelandic entrepreneurs developed “an almost American attitude to acquisitions and risk,” said David Ibison of the Financial Times.
Iceland was already struggling in February 2008. “Its currency is in freefall and the credit markets have dried up,” reported European Pensions and Investment News (EPN). Furthermore, Iceland’s central bank was steadfastly maintaining high interest rates of 13.75 percent.
At the same time, the Organization for Economic Cooperation and Development called on Iceland to restore its economic balance, encouraging cut backs on Iceland’s pricey state-funded health care system.
According to an article in The New York Times in April, the sub-prime mortgage crisis has thwarted Iceland’s “long economic boom.”
Some say Iceland has invested carelessly, although others blame foreign speculators. Either way, Iceland faces “a collapsing currency, rising inflation, double-digit interest rates and predictions of its first recession since 1992.” Many Icelanders believe that hedge funds have been trying to make a profit by sabotaging Iceland’s banks.
Iceland was “built on debt” and critics have compared the country to a “toxic hedge fund,” according to U.K. newspaper The Guardian. Although a small country, Iceland could have a huge impact on world markets if it experiences an economic meltdown.
According to EconomicPrincipals.com, Iceland borrowed large sums of foreign currency “to build electricity capacity at home and invest in European and American markets.” Icelandic entrepreneurs developed “an almost American attitude to acquisitions and risk,” said David Ibison of the Financial Times.
Iceland was already struggling in February 2008. “Its currency is in freefall and the credit markets have dried up,” reported European Pensions and Investment News (EPN). Furthermore, Iceland’s central bank was steadfastly maintaining high interest rates of 13.75 percent.
At the same time, the Organization for Economic Cooperation and Development called on Iceland to restore its economic balance, encouraging cut backs on Iceland’s pricey state-funded health care system.
Headline Links: Scandinavia to the Rescue
The central banks of Norway, Sweden and Denmark have collectively extended a 1.5 billion euro credit-line to Iceland. A London economist has suggested that The Bank of England should also participate to prevent Iceland from becoming what The Telegraph calls an "offshore Northern Rock," in reference to a troubled English financial institution that threatened the English financial infrastructure. Iceland's total foreign debt is $97 billion dollars, and its businesses conduct extensive trading with, and make substantial investments in, the Scandinavian countries and England. Despite the intervention, an economist at Danske Bank said the move may halt currency speculation but "changes nothing. Iceland is one of the most indebted countries in the world."
Source: Telegraph
The New York Times reports that over the past decade, Iceland has thrived on varied foreign investments, but the “long economic boom has ended in a painful bust,” largely due to “the paralysis in the global credit markets that followed the subprime crisis.” Now, Iceland faces “a collapsing currency, rising inflation, double-digit interest rates and predictions of its first recessions since 1992.” Many Icelanders believe that hedge funds have been trying to make a profit by bad-mouthing Iceland’s banks to force a collapse.
Source: The New York Times
UK newspaper The Guardian calls Iceland “the latest flashpoint in the global financial crisis.” The country has been “built on debt” and critics have compared Iceland to a “toxic hedge fund.” Although it is small, Iceland could have a huge impact on world markets if it faces economic meltdown, reports the article. Rapid expansion occurred when Icelandic banks and corporations borrowed huge sums of money, but refinancing that debt has become a problem.
Source: The Guardian
An article in the independent weekly newspaper EconomicPrincipals.com explains that Iceland borrowed cheap foreign currency “to build electricity capacity at home and invest in European and American markets.” According to David Ibison of the Financial Times, “Icelandic entrepreneurs have developed a reputation for aggressiveness, snapping up assets in the U.K. and shocking their consensus-driven Nordic neighbors with an almost American attitude to acquisitions and risk.” Encouraged by Iceland’s economic success, global investors took action, borrowing dollars and euros to buy the Icelandic currency, krona, and invest in Iceland’s stock market.
Source: economicprincipals.com
Background Links: Tracking Iceland's freefall
According to European Pensions and Investment News (EPN), Iceland was already “in trouble” in February 2008. “Its currency is in freefall and the credit markets have dried up,” reported the article. Furthermore, Iceland’s Central Bank was steadfastly maintaining “startling” interest rates of 13.75 percent. A fund manager speaking anonymously to EPN blamed Icelandic politicians for the crisis. “They are idiots,” he said. “Instead of finding an answer, the politicians claim that nothing is wrong and that things must continue as they are. But now they have to cut rates or credit markets will completely dry up.”
Source: European Pensions and Investment News
In February 2008, the Organization for Economic Cooperation and Development asked Iceland to reduce economic imbalances caused by expansion. The organization encouraged Iceland to cut back on its “efficient” but “very expensive” health care system, which is largely state financed. Iceland’s gross domestic product grew by about 4 percent in the past decade, but in 2007, it increased by only 2.7 percent.
Source: habba.com (Agence France Presse)
Related Topics: Iceland's impressive energy policies
An April 2008 Newsweek article reported on Iceland’s diversifying economy, “with rapid growth in tourism, manufacturing and financial services.” The article praised Iceland’s energy policies, awareness of climate change and efforts to reduce carbon emissions. In addition, all of Iceland’s electricity comes from geothermal or hydroelectric sources, which don’t use fossil fuels. “We are blessed with a lot of clean and renewable energy,” said Newsweek Prime Minister Geir H. Haarde. According to the article, Iceland “can teach the United States valuable lessons about energy policy.”
Source: Newsweek
© 2008 Dulcinea Media, Inc.
