As the BBC reports,

Iceland has suspended trading on its stock exchange in an attempt to prevent further panic spreading throughout the country’s financial markets.

Iceland’s stock markets will be shut down at least until start of next week. The reason for this unprecedented move is to give the government some breathing space to decide what to do next, and attempt to take the panic out of financial markets by simply keeping everyone away for a while.

This leaves Iceland in “good company” with Russia, whose stock markets were shut most of Wednesday due to huge falls in share prices, and for at least an hour on Thursday. In contrast to Wednesday, Russian stock markets were temporarily closed due to massive gains. Lucky them (but will it last?)

Collapsed banks update: Iceland is in a total financial mess with all its top three banks either nationalised or in receivership. Glitnir, which the government was aiming to part-nationalise earlier, is now in the hands of liquidators, as the government realised it was in too much trouble for the state to take on. Now Kaupthing, the largest bank of the three banks most in trouble, has been nationalised in addition to others.

Cause of troubles: I wrote about the causes of Iceland’s troubles very recently. “Troubles” is a bit of an understatement. People in the capital Reykjavik have already staged one demonstration this week and there is bound to be more civil unrest to come. Iceland might not have money left to import food stuffs for starters, so the collapse of the financial sector will have a very real impact upon everyone.

War of words with the UK: Gordon Brown and the Iceland’s PM Geir Haarde are engaged in a bitter battle of words at present. The UK has large investments in Iceland accumulated over the period of the Icelandic financial market boom. Now that the bubble has collapsed and banks have gone bust, Gordon Brown wants some guarantees that Iceland will honour UK savers’ deposits in collapsed Icelandic banks, as UK taxpayers will otherwise have to foot the bill in addition to bailing out British banks. Usually Iceland would have offered a guarantee of $28,400 per account but this has not been forthcoming in this case for the UK investors. The UK Government froze Iceland’s top bank Landsbanki’s financial assets in the UK. Icesave, the online savings bank with 300,000 UK customers, is a subsiduary of Landsbanki.

Geir Haarde is retaliating by saying, as Bloomberg reported today, that

the U.K. government is to blame for triggering the crisis when it used anti-terrorism laws to seize the assets of Icelandic banks in the U.K.

Iceland is also extremely unhappy that none of its usual Western partners have been forthcoming to lend it any money to help in its current crisis. It has had to look to other partners, including Russia and the IMF (International Monetary fund), to obtain money.

The row between the two PM’s is not serving to calm the panicked markets. The UK share prices is in freefall today and the pound is also falling against many key currencies.

Icelandic Currency collapsing: Iceland’s currency, the krona, was pegged to the euro before the crisis hit, at a rate of 131 krona per euro. Now that the government has stopped attempts to support the falling currency and formally abandoned the peg as unsustainable, trading conditions before markets shut down indicate that the currency is now worth about 255 krona per euro. That is a 91% drop in the value of the krona over the course of less than 2 weeks.

Bankruptcy: What is happening is pretty unprecedented for this country: Iceland is now facing bankruptcy. It is not in a position to repay the debts its banks have clocked up.

 

Copyright 2008 by CuriouslyInspired

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