Iceland shrinks 6.5%

ashleey

http://m.rte.ie/business/news/2010/0305/iceland.html

is this not a better performance than that of Ireland ? And given the shift from domestic consumption to exports is it not a better prospect than the commentators would have us believe ?
And to cap it all, quite rightly the people are refusing to pay for the mistakes of their banks?
Our govt. would have us believe that Iceland is doomed

SkepticOne

Interesting the different spin news agencies put on things. Where RTE are concentrating on the overall shrinkage of the Iceland economy, the BBC decided to concentrate on the 3.3% growth (not sure if that is an annualised figure) in the last quarter of the year.

http://news.bbc.co.uk/2/hi/business/8551662.stm

Iceland's economy grew by 3.3% in the last quarter of 2009, although it contracted by 6.5% over the whole of last year, official data has shown.

The news comes the day before the country holds a referendum on plans to repay the UK and the Netherlands debts owed from the collapse of Icesave bank.

This is likely to give a boost to the 'No' vote in the referendum tomorrow. Although there are lots of differences between Iceland and Ireland, it will be interesting to see what happens to another small country with a big banking problem but with a radically different approach to dealing with it.

ashleey

I'm English and had money in icesave which I got back from uk treasury. I hope the good people of Iceland vote against paying back money that was the fault of banks.
I know Ireland is in a corner because of the guarantee but that should not be renewed. Back deposits and let the rest go. The report from cork university re empty houses needs to be a wake up call

Sponge Bob

Interestingly Iceland with a completely crashed banking system shrank by 6.5%.

Ireland with a zombie bank system shrank by MORE than that , we were at YoY -7.6% end september and we will noyt have recovered in Q4 when that is out.

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-12022010-BP/EN/2-12022010-BP-EN.PDF

Had we shot the bastid banks in the head we might have performed as WELL as Iceland in 2009

Instead we have 5 our of 6 banks as fully staffed zombies, the other refusing to lend ( permo) and bloody nama about to hide the zombie crap as well together with the knowledge that the recapitalised banks after Nama have already refused to lend anyway.

ashleey

And the banks have admitted to being zombies ie no lending. At least in japan they hid that. Unfortunately, poor brian lenihan looks too sick to change course and the rest of them are old school parish pump politicians. It will be too late to get out of Nama by the next election and Germany, uk, and us aren't showing the hoped for growth to rescue things. Nama here is the equivalent of the icesave bill in Iceland but way bigger. Funnily enough with their banks down the people of Iceland are looking to the future and with our banks on life support we are stuck in the past.

sirromo

SkepticOne wrote:

This is likely to give a boost to the 'No' vote in the referendum tomorrow.

We're continually being told in this country that "without the EU we'd be worse than Iceland". I think if I was an Icelandic no voter I'd lose no time in telling people that "with the EU we'd be worse than Ireland".

woodseb

I don't think it is possible to compare iceland and ireland's banking woes. most of iceland's problems were offshore so they were able to shut themselves off from it whereas ours is related to property all around us. Also, iceland had a massive currency devaluation which helped exports though its costs of debt is much higher now too....

different situations IMHO, and not just 'one letter and six months' as some commentated at the time.

woodseb

sirromo wrote: »

We're continually being told in this country that "without the EU we'd be worse than Iceland". I think if I was an Icelandic no voter I'd lose no time in telling people that "with the EU we'd be worse than Ireland".

why are iceland trying to get into the EU now then?

ashleey

Is it the same Icelandic govt. that proposed the Icesave bill or the Icelandic people that want to join the euro? With 345000 empty houses here, enough for an expansion of 25% of the population, built on the back of loans from Irish banks, now funded through the ECB emergency window, I would say that Ireland has an external borrowing problem too.

Sponge Bob

woodseb wrote: »

I don't think it is possible to compare iceland and ireland's banking woes. most of iceland's problems were offshore so they were able to shut themselves off from it

It is by no means an exact analogy but given how a small pack of crooks in south dublin have engineered a massive bailout for their pyramid scheme it is an interesting contrast.

Iceland simply let its banks go in late 2008 and this bankless economy shrank 6.5%

Ireland bailed out the crooked management of AIB / BoI / Anglo and Nationwide to save its 'banking system' and shrank by 7.5%.

Meanwhile the entire Irish tax base is being poured into keeping a pack of crooks in south dublin in jobs. Fact

DrumSteve

that global warming is a bollocks, eh?

On a serious note... it looks like iceland may be starting to recover which is good for them. should we have followed their lead... i think so. but since it seems the general consensus within europe that banks can't be allowed fail i doubt we could have followed that route.

woodseb

ashleey wrote: »

Is it the same Icelandic govt. that proposed the Icesave bill or the Icelandic people that want to join the euro? With 345000 empty houses here, enough for an expansion of 25% of the population, built on the back of loans from Irish banks, now funded through the ECB emergency window, I would say that Ireland has an external borrowing problem too.

Ireland can borrow in Euros through the ECB without much problems (most of this year is already funded and we aren't being talked about in the same breath as Greece, Portugal Spain anymore), Iceland has to borrow through the IMF in foreign currency - their borrowing problems aren't even in the same league.

Have a read.....

Without an agreement, Iceland risks being locked out of further disbursements from a $4.6 billion aid package agreed with the International Monetary Fund and the Nordic countries, which have indicated that their hands are tied until the Icesave issue is resolved.
Moody's Investors Service, which has Iceland's rating at the cusp of junk
territory, on Feb. 26 said that because a "no" vote will prevent Iceland from
accessing those IMF and Nordic funds, confidence in the Icelandic krona will
fall and will postpone the removal of capital controls implemented to safeguard
the currency. A rejection could also lead to political instability and hinder
the island's economic recovery, Moody's said.
Economy Minister Gylfi Magnusson Thursday also warned that a lack of IMF
funds could sink gross domestic product by 5% this year instead of 2% to 3% as currently estimated.
That would add another blow to the small economy, which just Friday received a ray of hope as data showed GDP grew a seasonally adjusted 3.3% on the quarter in the last three months of 2009, a huge jump from the 7.2% contraction reported in the third quarter. The big improvement should, however, be taken with a grain of salt as Statistics Iceland itself warned that the current method for calculating seasonal adjustments is likely to overstate the growth rate between the third and fourth quarters.
On the year, GDP fell 9.1% in the fourth quarter, putting the decline for
2009 as a whole at 6.5%, slightly better than the roughly 7% contraction
forecast by the government.
Perhaps even more worrisome than Iceland's output declines is the strain a
shortage of outside aid would impose on Iceland's ability to refinance EUR1
billion of foreign debt maturing in December 2011 and an additional EUR200
million due in 2012.
Any big delays in disbursements would all but drain the central bank's
foreign-currency reserves, which currently stand at just EUR2.7 billion, and make it next to impossible to relax capital controls--further complicating
Iceland's ambition of becoming the EU's 28th member by 2012 or 2013. EU
Enlargement Commissioner Stefan Fule on Feb. 24 said the commission backed
Iceland's membership talks but that work is still needed in some areas
including the free movement of capital.

SkepticOne

Whatever the differences, it's getting harder to say "Look at Iceland" when it comes to justifying propping up failed banks here.

woodseb

Sponge Bob wrote: »

Meanwhile the entire Irish tax base is being poured into keeping a pack of crooks in south dublin in jobs. Fact

Yes, that is a fact, and there is no point in discussing it.:rolleyes:

ashleey

This has definitely raised an interesting comparison that beats the usual 'one letter and 6 months' rubbish. The fundamental issue boils down to repayment. Ireland is committed to repayment at a fixed exchange rate, whereas Iceland's are floating and thus vulnerable to a currency fall. However, a currency will not fall with prospects for economic growth. So both countries must grow (and also the UK while we are at it) to pay back the debts of the mistakes of the past. In Iceland's case, at these rates they may be confident to borrow externally through the IMF and Nordics. In Ireland's case we are borrowing for the country and for the banks past loans through syndicated govt. bond issues that end up being turned with the ECB. However, Iceland are not borrowing for past banking loans as they let them go bust and are they having difficulty funding their govt. deficit?

woodseb

woodseb wrote: »

Ireland can borrow in Euros through the ECB without much problems (most of this year is already funded and we aren't being talked about in the same breath as Greece, Portugal Spain anymore), Iceland has to borrow through the IMF in foreign currency - their borrowing problems aren't even in the same league.

Have a read.....

Good post.

Let me put it to some of the people in this thread who think the Iceland route is the right one: Would you invest in anything to do with Iceland?

As is said, it's a good thing that Ireland is showing some responsibility when it comes to handling the situation we find ourselves in. Do you lend money to your mate who's actually making an effort to pay you back money owed, or do you lend to the mate who told you to FO? Of course that's a totally simplified version of events but the idea is the same.

ashleey

Iceland haven't defaulted. Their banks have. Would you lend to the Irish govt. i.e. The Irish people - probably. Would you lend to the AIB without the guarantee? Would you lend to Anglo without nationalisation?

ashleey

ashleey wrote: »

Iceland haven't defaulted. Their banks have. Would you lend to the Irish govt. i.e. The Irish people - probably. Would you lend to the AIB without the guarantee? Would you lend to Anglo without nationalisation?

Who is having a vote tomorrow? The banks?

woodseb

ashleey wrote: »

Iceland haven't defaulted. Their banks have. Would you lend to the Irish govt. i.e. The Irish people - probably. Would you lend to the AIB without the guarantee? Would you lend to Anglo without nationalisation?

I don't see your point?

Any person would be more likely to lend to Irish banks rather than Icelandic Banks and also the Irish government rather than the Icelandic government - this is proven by the yields, debt ratings, CDS of the respective issuers.

I don't see any reason for us to look at the icelanders as some kind of alternative route we could have taken

ashleey

You are right that that the Icelandic way may not have worked here.

However, if they are as doomed as we have been led to believe, why is their recession less severe?

Anyway it is about future prospects. Wouldn't their economic figures suggest that they are rebalancing towards 'an exporting economy' whereas do we feel that this is the transformation that is going on here? Is the life support for Irish banks helping or hindering future prospects when they have admitted that they are not lending to anyone and will be increasing their margins in general?

I think the overall point is that the Icelanders are refusing to pay back the debts of their banks. Maybe nationalised banks here would have/will be the model. At least we get a share of their future profits through their widening margins. At the moment we get the downside with no upside.

woodseb

ashleey wrote: »

You are right that that the Icelandic way may not have worked here.

However, if they are as doomed as we have been led to believe, why is their recession less severe?

Anyway it is about future prospects. Wouldn't their economic figures suggest that they are rebalancing towards 'an exporting economy' whereas do we feel that this is the transformation that is going on here? Is the life support for Irish banks helping or hindering future prospects when they have admitted that they are not lending to anyone and will be increasing their margins in general?

I think the overall point is that the Icelanders are refusing to pay back the debts of their banks. Maybe nationalised banks here would have/will be the model. At least we get a share of their future profits through their widening margins. At the moment we get the downside with no upside.

the icelandic recession was less severe for various reasons, some of the main ones are that they had no construction boom with the resulting mass loss of jobs, the 'bad assets' were not related to there own economy and they also were able to devalue their currency which has a quick stimulus effect, especially on exports/inward investment (i'm going there on holiday next month;) ).

However as you say, it is about future prospects and the GDP growth forecasts look better here than there. I think in the long term, facing up to our debt responsibilities with the EU is the right way to go. Iceland was faced with their own choice and i think they took the right route also, taking on the debts of the banks in their economy of 300k people wasn't feasible

ashleey

It's been a good discussion.

I reckon we should diairise a return in 12 months and assess which country chose the right course.

I still think NAMA is wrong though and don't even start with the mess the UK is in.

SkepticOne

Rojomcdojo wrote: »

Let me put it to some of the people in this thread who think the Iceland route is the right one: Would you invest in anything to do with Iceland.

If the business is viable, why not? I would have more worry here with what the government might do in the way of tax increases if the situation with the banks continues to deteriorate as seems likely.

ashleey

ashleey wrote: »

It's been a good discussion.

I reckon we should diairise a return in 12 months and assess which country chose the right course.

I still think NAMA is wrong though and don't even start with the mess the UK is in.

Yep but we should set criteria for the assessment:
Economic dependency Ratio (better than unemployment rate because it cant be misrepresented)
GNP (better than GDP because of transfer pricing)

Anything else?
We should post up each countries figures for these and whatever else we decide for pre bust, now and in a years time

ashleey

Not forgetting net external liabilities of course

AlekSmart

Funnily enough with their banks down the people of Iceland are looking to the future and with our banks on life support we are stuck in the past.

This is an interesting facet of the situation and one which is not easily explained.

The total lack of any apparent reporcussions on some highly suspect bankers and developers is having a very negative effect on the rest of Irish society...ie:The Have-Nots :mad:

ashleey

I forgot to ask, for those that are convinced that Iceland have followed the wrong course and Ireland the correct, what's your view on the Icesave referendum? Would you vote yes or no, regardless of the discussion about letting the banks go bust etc.?

Sand

@Rojomcdojo

Let me put it to some of the people in this thread who think the Iceland route is the right one: Would you invest in anything to do with Iceland?

Sure, if the return was in line with what I perceived the risk to be.

You know investors? They are heartless, souless, godless, bloodless monsters. *All* they care about is risk vs. return. If the return is good enough theyll invest with the Nazis, kleptocratic dictators and rogue states. Actually, wait, they did and do.

Iceland is no longer worrying about how to save its banks - its moved on to working out how its going to grow in future. Ireland is still worrying about how to save its banks, with NAMA being a major effort to destroy as much capital as we can in an effort to bolt a stable door long after the horse has fled. I know who I would bet on having a better future over the next 10 years.

What is useful about this is that it invalidates Lenihans bull**** about "Iceland! Iceland!". I imagine he wont be talking about Iceland (!) so much now.

PeakOutput

ashleey wrote: »

I forgot to ask, for those that are convinced that Iceland have followed the wrong course and Ireland the correct, what's your view on the Icesave referendum? Would you vote yes or no, regardless of the discussion about letting the banks go bust etc.?

from a general stand point as an outsider they should vote yes because their banks took that money and then lent it out to people in iceland they shouldnt have the option of just saying no sorry not paying you back

i dont know the ins and outs of it but from what i have heard it sounds like this

you lend joe 10K he lends 10K to tom

joe dies

tom tells you to **** off and never pays anyone back the 10K

if i was from iceland id probably be voting no from a purely selfish point of view but its not the right thing

also were our economies of equivalant size before the recession hit each of them? if they were not then its not really like for like saying we are automatically doing worse because we went down 7.3 and they went down 6.9

finally isnt there currency worth sweet **** all now and inflation is/was out of control which will make imports very very hard to make back?

The_Honeybadger

ashleey wrote: »

You are right that that the Icelandic way may not have worked here.

However, if they are as doomed as we have been led to believe, why is their recession less severe?

Anyway it is about future prospects. Wouldn't their economic figures suggest that they are rebalancing towards 'an exporting economy' whereas do we feel that this is the transformation that is going on here? Is the life support for Irish banks helping or hindering future prospects when they have admitted that they are not lending to anyone and will be increasing their margins in general?

I think the overall point is that the Icelanders are refusing to pay back the debts of their banks. Maybe nationalised banks here would have/will be the model. At least we get a share of their future profits through their widening margins. At the moment we get the downside with no upside.

I would guess that their recession is less severe as they didn't fall from nearly the same height as we did. We were after all the envy of Europe for a decade, pity it was all based on a totally overhyped property bubble

Sand

i dont know the ins and outs of it but from what i have heard it sounds like this

you lend joe 10K he lends 10K to tom

joe dies

tom tells you to **** off and never pays anyone back the 10K

Actually it goes like this.

You are giving your money to Ted, the family solicitor. Ted is an honest man, slow, but reliable. He gives you 1% return on your cash, enough to buy a round as the Duck and Crown.

Suddenly Joe arrives up in your sleepy, middle England village. He steps out of his stretch limo flashing the cash. He tells you hes got the secret to making money with no effort. He tells you to forget Ted. He'll take your money and give you a 10% return. You ask him how he plans to do this, but he says "Shure, best you dont know so you dont have to tell any lies, eh what?!?!" nudge, nudge, wink, wink.

Hes a bit of a Carlos Kickaball, but you like the 10% so you give him your money.

Suddenly, Joe doesnt return your calls anymore. Hes gone to Mexico apparently, with your money. Well, ****e!

Oh well, apparently Joe has some distant cousin, 8 times removed. You cant find Joe, so this Tom ****er will do for a shakedown.

But whats this? Tom says he is not Joe. He says he doesnt owe you a penny. He says go get your money from Joe! The cheek of the little git. Its like hes saying its your fault for giving your money to a conman!!!

ashleey

And you forget to say that 'don't worry because mr and mrs svensson will pay you back'.

http://news.bbc.co.uk/2/hi/8554020.stm

Iceland celebrates after rejecting Icesave payback plan

NAMA

PeakOutput

Sand wrote: »

Actually it goes like this.

You are giving your money to Ted, the family solicitor. Ted is an honest man, slow, but reliable. He gives you 1% return on your cash, enough to buy a round as the Duck and Crown.

Suddenly Joe arrives up in your sleepy, middle England village. He steps out of his stretch limo flashing the cash. He tells you hes got the secret to making money with no effort. He tells you to forget Ted. He'll take your money and give you a 10% return. You ask him how he plans to do this, but he says "Shure, best you dont know so you dont have to tell any lies, eh what?!?!" nudge, nudge, wink, wink.

Hes a bit of a Carlos Kickaball, but you like the 10% so you give him your money.

Suddenly, Joe doesnt return your calls anymore. Hes gone to Mexico apparently, with your money. Well, ****e!

Oh well, apparently Joe has some distant cousin, 8 times removed. You cant find Joe, so this Tom ****er will do for a shakedown.

But whats this? Tom says he is not Joe. He says he doesnt owe you a penny. He says go get your money from Joe! The cheek of the little git. Its like hes saying its your fault for giving your money to a conman!!!

why is that what its like?

were the icelandic banks not legitimate institutions?

did the icelanders not benefit from these banks lending policies?according to the financial times iceland had a reputation during the boom years of wreckless spending and taking advantage of every opportunity as far as easy money goes(podcast i can get a link if really necessary)

ei.sdraob

PeakOutput wrote: »

why is that what its like?

were the icelandic banks not legitimate institutions?

did the icelanders not benefit from these banks lending policies?according to the financial times iceland had a reputation during the boom years of wreckless spending and taking advantage of every opportunity as far as easy money goes(podcast i can get a link if really necessary)

you can equally say that people of Ireland benefited from reckless lending here, and kept re-electing the people responsible

only to find out that it was all a mirage

PeakOutput

ei.sdraob wrote: »

you can equally say that people of Ireland benefited from reckless lending here, and kept re-electing the people responsible

only to find out that it was all a mirage

i do say that aswell

johnnyskeleton

Rojomcdojo wrote: »

Good post.

Let me put it to some of the people in this thread who think the Iceland route is the right one: Would you invest in anything to do with Iceland?

Maybe, if there was a solid undervalued asset there.

But the point you raise is not whether anyone would invest there (i.e. high risk high return investors), but whether there would be a high level of investment there. So let's look at it from the point of view of a low risk low return investor.

Would they invest in Iceland now? Probably not, but nor would they invest in Ireland either, as evidenced by the tumbling ISEQ. Other than brass plate transfer pricing firms, Ireland is a very bad investment prospect at the moment.

However, would such a person invest in Iceland if in a year or two it has bottomed out at a very low level and the growth seen in Q409 is repeated for a year or they see a lower but steady level of growth e.g. 0.5-1% per quarter. I think they may well do so.

Would the same be true of Ireland? I don't think so. First off, we are nowhere near bottoming out as the government is doing everything it can to prevent this. €20-25bn deficits = €20-25bn stimulus each year. NAMA is another 50bn stimulous. So in 2010 the government will spend at least 70bn propping up a country with a GNP of maybe €145bn (our latest figures suggest we are nearing 2005 levels). But even when you get past this massive stimulus, Ireland is not an attractive place for investment because of its high cost. This is not true of Iceland. Indeed, if Iceland were clever they could take a lot of Ireland's FDI and attract high levels of international investment in smart technology. After all, they are also a young, well educated population with a high level of enlish speakers who have ready access to the EU markets with the restrictions that the EU brings. But, more importantly, they are significantly cheaper to set up in.

This is the whole point that the government either missed or deliberately misunderstood. Investors do not hold grudges for past mistakes to any significant degree (after all, 1929 didn't destroy the US, nor did 1977 destroy NY). What's important to them is that there is current stability and good opportunities to make money. Iceland is on the way to being both, while we are stuck being neither.

You can take your medicine now and it will be tough but it will build a better future. Or you can try to put off the evil day when you are held to account. I think the Icelandic approach is more risky but is more likely to succeed. I guess in a few years time we can really assess whether it is better to have a de facto default and pick yourself back up or instead try to prop up a failing regieme.

One final thought, Donald Trump filed for bankruptsy twice. Did that stop people placing their money with him?

Sponge Bob

And 93% of Icelanders voted against the terms of the Icesave deal. This is a tad unsurprising seeing as:

1. UK Invaded and Occupied Iceland in 1940
2. Invaded Icelandic Territory again in the 1970s during the cod war
3. Declared that Icelanders were terrorists in 2008

ashleey

Which is precisely why the uk should have said give us our money back but take your time. Instead they went down the first world war reparations route and look where that went. Brown is either brainless or his advisors are or both. The Icelanders are really decent people and whilst the asset freeze was understandable the rest was out of order. I'm English and it pains me that we never learn from the bad parts of our international reputation.
Fair play to the president and People for turning down the package. What chance of something along those lines here ?

woodseb

ashleey wrote: »

Which is precisely why the uk should have said give us our money back but take your time. Instead they went down the first world war reparations route and look where that went. Brown is either brainless or his advisors are or both. The Icelanders are really decent people and whilst the asset freeze was understandable the rest was out of order. I'm English and it pains me that we never learn from the bad parts of our international reputation.
Fair play to the president and People for turning down the package. What chance of something along those lines here ?

in fairness, the deal on the table allowed a 7 year grace period and then payback by 15 years

ashleey

Agreed, but maybe they should have linked the interest rate to UK rates rather than a penalty rate. There's no point charging a penalty to those that can barely pay you back. Still, most of this is supposedly a technicality and a new agreement is in process, probably by threatening to veto their application to the Euro, which would probably be a favour to them anyway.

BarryM

Good thread, I'd just like to comment a bit and add a few points.

1. We are constrained by European Central Bank policy. We don't have any flexibility. In any other scenario we wouldn't necessarily have done what we did vis a vis the banks, etc.
2. Icesave was suggested by government auditors in the UK as a 'good place' for local authorities, etc.,
to put their money. They obviously didn't do any homework, 10%+ when nobody else is offering it is madness.....and it was Icelandic banks....
3. Iceland has an independent economy 'cos they didn't surrender their fish. In addition, there is no guarantee they'll join the EU, not unless they can defend their fish.
4. This weekend the IMF said they would support Iceland, regardless of the result of the referendum.
5. Iceland has never said they won't pay the UK back, they just said we want better terms, after all you messed up as well....

In Iceland this Summer they were selling a teeshirt with the slogan "Brown is the colour of poo"

ashleey

I don't think they were offering 10%, it was more like 1% above almost everyone, but not all else.
The UK didn't embark on a hostile invasion of Iceland in WW2, but it shouldn't be relevant anyway (to earlier poster). The UK was out of order during the cod war but who hasn't heard a fisherman moan about foreign boats?
The Icelanders are great people and everyone should visit.
And they are right about G.Brown.