10 October, 2008

Crisis: The new cod war?

There is plenty about the current credit crisis which people will find difficult to understand but perhaps the strangest is the existence of Iceland in it.

Iceland has a population around the size of Leicester and is known internationally for a very small number of things: the cod wars of the mid 1970s, the world chess championship being held in Reykjavik, oh, and a couple of bold, Australian style entrepreneurs who liked to invest in Britain.

We now learn that upwards of £800 million of British cash has been invested in Icelandic banks and Iceland is refusing to promise its safe return. But why is there all this British money in Icelandic Banks? It emerges that Kent County council has £50m invested; Transport for London has £40m. Why Iceland? Why not in the banks of Norway or Finland, larger economies, or if the temperature of the parent country is not important, South Africa or Singapore? Or Britain?

The answer can only be that the Icelandic banks were offering a better deal. It was that extra one eighth of a percent that they went for. And why were Icelandic banks offering more? To prop up their ailing companies.

One can't help feeling that it serves the investors right. Why should the government get involved?

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