Fear, rumours and irritation hit Iceland as investors express doubts over economy
Protests over price rises; leaders denounce foreign investors
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A lack of confidence expressed by international investors in the economy of Iceland and the country’s banks has led to economic anguish in the country.
The deep despair has taken on manifestations bordering on chaos, as emotions rise to the surface.
Ordinary Icelanders are protesting the rise of prices, and the country’s leaders are lashing out against foreign investors.
On Tuesday an unusual demonstration was seen in the capital Reykjavik.
“About 200 drivers drove in circles around the House of Parliament, sounding their horns”, said Klemens Thrastarson to Helsingin Sanomat by telephone on Wednesday.
The motorists were demanding cuts in the tax on fuel. Petrol and other imports have grown more expensive as the Icelandic currency has weakened by 30 per cent against the euro since the beginning of the year.
There are also reports of hoarding for fear of sharp price rises - a fear encouraged by advertising openly urging people to “buy today because tomorrow it will cost more”.
The Icelandic króna is weakening because investors have expressed doubts about the sustainability of the country’s economy. The lack of confidence is reflected in the fact that the risk premiums seen on credit derivatives of Icelandic banks have shot up to a higher level than has ever been seen before.
The rise is seen as “an unpleasant smell of ruthless investors. [The investors] have decided to try for the last time to cause Iceland’s financial system to collapse”, said David Oddson, the director of the Icelandic Central Bank on Friday.
Prime Minister Geir Haarde accused hedge funds of launching an attack against Iceland.
"We would like to see these people off our backs and we are considering all the options available”, he said in an interview with the Financial Times.
In addition to investors, the confidence of international credit rating organisations in Iceland has also declined.
Three big international companies in the field - Fitch, Moody’s and Standard & Poor’s - are considering lowering Iceland’s rating, fearing that Iceland’s ability to pay will suffer if a possible bank crisis takes effect.
It is by no means certain if the state in Iceland can take care of its present commitments and the additional burden of a banking crisis at the same time.
Icelandic banks are very large in comparison with the size of the country’s economy.
However, the situation in Iceland is not necessarily as hopeless as the events of recent weeks might suggest.
Although the solvency of Icelandic banks and the state have been called into question, Icelandic and foreign experts interviewed by the Icelandic media have repeatedly said that there is no evidence that the solvency would have been weakened.
The financial state of both the banks and the Icelandic state are stable, according to the figures, and Icelandic banks have not invested in assets guaranteed by US subprime housing loans, they say.
Icelandic banks are seen to have been singled out in a situation in which there are suspicions in the financial market against all banks.
Helsingin Sanomat
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| 3.4.2008 - TODAY |
 Fear, rumours and irritation hit Iceland as investors express doubts over economy |
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