1ER by gabyion


									INTERNATIONAL m* . 4
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London, Iceland says, made its crisis worse
By Sarah Lvall
to falter, Thousands of Britons — indi-	having trouble getting paid by their for-
LONDON: No one disputes that Ice-	viduals, companies, local governments,	eign customers,
land's economic troubles are largely iits	charities — held accounts in the British	Many people are also furious about
own fault. But there may be more to tlhe	branches and subsidiaries of several of	the seizure of Kaupthing, Singer and
story, at least in the view of Iceland's	the banks, having been attracted by	Friedlander, the British subsidiary of the
government, its citizens and even some	their offers of high interest rates.	Icelandic bank Kaupthing, which the
outsiders. As grave as their situation	As the financial crisis picked up mo-	government believed would survive,
already was, they say, Britain --theii	mentum around the world, Iceland's	"The Icelandic government believes
old friend, NATO ally and trading part-	banking system began to crash and the	that this was done without cause,"
ner — made it immeasurably worse.	British government grew alarmed	Gunnlaugsson said. "If the bank had
The troubles between^ them began	about its citizens' accounts there.	held, we'd be in a far less dire situation
three weeks ago when Britain took the	On Oct. 8, it used anti-terrorism laws	than we are now. But the seizure led to
extraordinary step of using its 20I01	to freeze the British assets of a failing	the complete collapse of the parent
anti-terrorism laws to freeze the British	bank, Landsbanki, It also seized the as-	bank." Kaupthing did in fact lose credi-
assets of a failing Icelandic bank. Th at	sets of Kaupthing, Singer and Fried-	bility almost instantly. Its board of di-
appeared to brand Iceland a terroriist	lander, the British subsidiary of another	rectors then resigned and the bank
Icelandic bank, Kaupthing.	went into receivership.
"I must admit that I was absolutely	"The Icelandic government, believe	"Kaupthing was the last, best hope of
appalled," the foreign minister of Ice-	it or not, told me yesterday that they
land, Ingibjorg Solrun Gisladottir, said	have no intention of honoring their obli-
in an interview, describing her horror at	gations here," Alistair Darling, chancel-
opening the British treasury depart-	lor of the Exchequer, declared the day
ment's home page at the time and find-	Britain seized the assets.
London used its 2001
anti-terrorism laws to
freeze the British assets
ing Iceland featured on a list of terrorist But whether that was true is a matter
entities that included A1 Qaeda, Sudan of some dispute. The Icelandic govern-
and North Korea.	ment says it said no such thing.
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 bank¬
ing transactions between Iceland and
abroad," said Jon Danielsson, an econo¬
mist at the London School of Econom¬
ics. "When you're labeled a terrorist,
nobody does business with you."
Prime Minister Geir Haarde accused
of a failing Icelandic bank.
"Not at all," a top government official
said, speaking on condition of anonym¬
ity, following diplomatic protocol. Re¬
ferring to Iceland's finance minister,
Ami Mathiesson, who spoke to Darling
on Oct. 7, he added: "The minister here
was trying to ask Mr. Darling for more
time, because the Icelanders certainly
didn't want to renege on the obligations
we had undertaken."
Whatever the case, reaction was im¬
mediate and severe, particularly when
London of "bullying a small neighbor" Brown said the following day — inac-
and said its action was "very out of pro- curatelythat "we are freezing the as-
portion." In a recent speech in Hong sets of Icelandic companies in the U.K.
Kong, Howard Davies, a former deputy where we can."
director of the Bank of England and Iceland's ambassador to Britain,
now the director of the London School Sverrir Gunnlaugsson, said in an inter-
of Economics, said that Britain had used view that that statement was particu-
a "beggar thy neighbor" approach itc larly damaging.
Iceland. ,	...	"There was a perception in the U.K.
And an online petition signed so far press and among suppliers that every-
by more than 20 percent of the Iceland- thing Icelandic had been frozen," he
ic population says that the British prime said. "The word was put out belatedly
minister, Gordon Brown, had sacrificed that this was not the case."
Iceland "for his own short-term politic- Icelanders say that it is now nearly
al gain," thereby turning "a grave sitiu- impossible to get foreign currency in or
ation into a national disaster."	-
Iceland's financial problems had out of the country. Many banks have re-
been brewing for some time. This past fused even to transfer money to Iceland,
spring, the country's banks, bloated Importers are haying difficulty paying
with foreign deposits and debts, began their foreign bills and exporters are
the Icelandic banking system and it was
killed there and then," Andres Magnus-
son, an editorial writer for Icelandic
Business 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
both inside and outside of Iceland. More
than 8,000 depositors, individuals and
businesses, hold Kaupthing, Singer and
Friedlander accounts worth about $1.34
billion on the Isle of Man, money that
they now cannot get their hands on —
and may never. They are eligible for
compensation neither from Britain nor
from Iceland and they — along with the
Isle of Man government — blame Britain
for what happened to Kaupthing.
Iceland is in line to receive a $2 bil¬
lion loan from the International Mone¬
tary Fund and is talking to other Scan¬
dinavian countries. It is not entirely
friendless: It was recently offered a loan
of $52 million from the tiny Faroe Is¬
lands, for which it is very grateful,
Gunnlaugsson said.
The government has pledged to make
good on domestic bank accounts. But it
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sisSii mi			
L'Islanda afferma che Londra ha aggravato la sua crisi (ca)
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is still fighting with London over how
much it is obliged to pay — and how
much it can afford to pay — to com¬
pensate people with accounts in
Icesave, Landsbanki's British branch.
Estimates of the amount in question
are staggeringly high. Under European
regulations, Iceland is obliged to pay
€20,000, or about $25,000, to each indi¬
vidual account holder in Icesave. But the
total, Gisladottir said, would amount to
about 600 billion Icelandic krona —
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 some¬
thing we cannot afford."
The British government has guaran¬
teed 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 govern¬
ments, charities and universities that
had Icesave accounts. That figure alone
is well over a billion dollars.
Iceland's key interest rate now stands
at 18 percent. The krona has declined 44
percent in the last year,
Danielsson visited the country re¬
cently and found the situation grave.
Heavily dependent on imports, Ice¬
land is starting to experience shortages
of nonessential items, he said. People
are trading the krona for foreign cash
on the black market. Consumers who
took out loans for cars and homes in
foreign currencies are seeing their
monthly payments go through the roof.
"Salaries are frozen, food prices are
shooting up and they are laying off
people left, right and center," Daniels-
son said. "Companies are going bank¬
rupt all over the place. It's unimagin¬
able how bad it is."

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