The political situation in Iceland
since the collapse of the financial
The collapse and reaction
• 80% of the financial system wiped out (market-cap wise).
• Emergency law enacted overnight enabled Financial Supervisor Authority
(FME) to take control of three biggest banks.
• Treasury has injected 385bn ISK into the new, state owned banks.
• Rest of financials dependent on Repo transactions with the Central banks of
• Central bank had big outstanding Repo transactions with the big banks,
345bn ISK had to be written off. Treasury took on that debt.
• Central Bank was technically bankrupt after the collapse.
• Currency crisis on top which has now led the government to enforce capital
• Central Bank now oversees and has to (formally) approve of all big currency
• Government sought aid from IMF, and loans from neighbour countries
Public reaction to the crisis
• ISK has plummeted => Inflation is now 18,1%.
• Icelandic personal mortages are either inflation-
linked (~75%) or taken in a another currency
(~25%) Mostly EUR, CHF or JPY which bear
lower interest rates than ISK.
• Most of those foreign loans were taken when the
ISK exchange rate index averaged at 116 in
• Today it is almost 220.
• => Everybody’s mortage payments have gone
Public reaction to the crisis II
• Regular public demonstrations have taken
place since November.
• Small number of people have over the last
weeks attacked and injured police officers,
broken into the parliament building, broken
windows in the Central bank and FME
Sovereign debt crisis on the way?
The political landscape
Independence Party convention