Posts Tagged ‘landbanki’

And so it came to pass that the Cyprus parliament was not happy and rejected what was possibly the maddest idea ever put forward to bail-out a country. The vote was a close run thing, with 36 members of the Cyprus parliament voting against the bank levy and 19 abstaining. The number of MPs voting for the proposal reached a grand total of zero.

Good for Cyprus. Now it has to decide what to do next.

It could do a lot worse than consider the lesson of Iceland. In 2007 Iceland’s GDP was 1.293 trillion kronor. In 2008, its external debt was 9.533 trillion.

You may remember that when the scale of Iceland’s problem emerged, and when the UK press found out that UK citizens and local authorities had exposure to Icelandic banks, the country was made to do the walk of shame. Its representatives were hauled up by the British media: “Are you ashamed?” they were asked, and: “What are you going to do about our money?”

The UK used anti-terrorism legislation to freeze Landbanki assets. This was not a move that endeared Britain to the Icelandic people, but maybe the UK felt it had an opportunity to exert revenge over the cod wars, and the Viking invasions before that.

Back in January of this year, the court of the European Free Trade Association – one of those cursed EU courts that should be banned because it tries to consider all points of view and not just the UK’s position, or indeed the position of the UK tabloids – ruled in favour of Iceland over the UK and Holland. Its decision means that the little island to the north west corner of Europe will repay the money it owes to the UK and the Netherlands gradually, and under its terms.

Today, Iceland and its people are still suffering. But then again, it has enjoyed seven successive quarters of growth. It is not easy repaying debts when the money you owe is valued in a foreign currency and the currency in which you receive your salary crashes. Iceland was pretty much left high and dry by the international community (you are on your own mate, was the general feeling attitude in the UK). The IMF did loan out money, but as usual under terms that were very painful. Iceland eventually responded by having bank loans to its citizens valued in foreign currencies declared illegal. Other legalization enabled many homeowners with negative equity to write-off much of their debt.

Ironically, Iceland may yet see a pretty sensational turnaround, and become one of the wealthiest countries in the world on a per capita basis thanks to its one of the island’s most famous natural resources, but one we don’t usually think of as resource at all. Plans are afoot to pipe heat from Iceland’s volcanoes and lava flows, and – via the magic of thermal energy – heat northern Europe. Iceland may yet have the answer, or at least a partial answer, to the energy crisis, and one that does not risk exacerbating global warming.

Iceland also has rather a lot of something else. What is it now? Oh yes, that’s right, ice. Maybe it could use that to cool down the Sahara – all we have to do to achieve that is to solve the minor problem of working out how to transport ice a few thousand miles without it melting.

Cyprus has neither ice nor lava, but it does have a lot of natural beauty.

Its future will be best served outside a Eurozone that has completely failed to come to its rescue in its hour of need. It may be better off with a cheaper currency, and laws designed to protect its citizens over the interests of foreign investors, whilst at the same time welcoming foreigners who can boost its economy. Best of luck to you, Cyprus. Anyone fancy moving there?

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