Iceland "the land of snow" a Little country with less
than 330,000 inhabitants, attracted the attention of the world by participating
for the first time in a Eurocup, France 2016 and eliminating a big one such as
England and reaching the quarter-finals. While Iceland was in the mouths of all football fans, in the
economic and financial field just a few know that this small nation experienced
a enormous catastrophe after the financial crisis of 2009 being the largest
bank collapse in history.
The history
Well, this story begins in 2000 when the government of Iceland did
a banking deregulation, privatizing the three largest banks: Landsbanki,
Kaupping, and Glitnir. By 2003
banks began to expand overseas, international conditions and European
legislation allowed it to be an attractive business look beyond the island.
In a period of five years, the three small Icelandic banks that
had never operated outside Iceland borrowed $ 120 billion, 10 times the
economy, ie 1000% of Iceland's GDP at that time, in contrast, Lehman Brothers
represented only 5% of the GDP of the United States. It created a huge bubble, the value of
the stock market increased nine times.
According to data from the Central Bank of Iceland, just
before bankruptcy, banks held their shares in krónur while two-thirds of their
assets were in foreign currency, especially British pounds. The engine of the crisis was the
Icelandic króne. When the
market does not provide enough foreign exchange, the capacity of a central bank
to help banks is limited. The Icelandic bank had seven times the country's GDP
in foreign currency.
The
crisis
Following the bankruptcy of Lehman Brothers in the United
States on September 25, the Glitnir bank asked the Central Bank for $ 600
million to repay a maturing loan in October. The Government intervened on September 29th buying 75% of its
shares for 600 million. Their
titles fell 75%. This did
not restore confidence in the financial system, the international deposits of
its banks escaped from Iceland and the Financial Supervisory Authority (FME)
intervened on October 6 to avoid the total fall of the banking nationalization
also the Landsbanki.
When Iceland's banks sank at the end of 2008, unemployment tripled
in six months, from 3% to 9%, the inhabitants of Iceland were affected and many
lost their savings. The
government's financial supervisory authority did not protect citizens, as
competing against bank lawyers was an impossible task, to the point that
one-third of the regulator's employees were employed by the banks.
After Iceland's three largest banks broke down within three days,
and the currency collapsed, the stock market fell 95 percent and almost all
businesses on the island were bankrupt. Interest rates rose from 14% to 18%, Icelanders who had loans,
could no longer pay them, had to sell their assets.
To deal with the external debts of the banks, the State, and the
taxpayers had to assume responsibility, at least in part. Each family had to pay 3,500 Kronur for
15 years at 5.5% interest, the Icelanders called a referendum for March 2010
and 93% of the voters said "no" to the payment of bank debts by the
Icelandic state. The
government renegotiated the payment with new conditions, lowered the interest
rate to 3% and the pay period would be 37 years (until 2046) but with a second
referendum in 2011, the Icelanders rejected it.
To solve
the problem, the 3 major banks announced their bankruptcy in the first instance and online
bank Landsbanki was nationalized; while the other two were divided into a "New
Bank" and an "Old Bank". The first, with new capital, assumed
activities such as payment transactions, automated teller machines (ATM) allowing
the population access to their savings, lending, among others. The second, it received debts and all
foreign businesses with toxic assets, whose settlement was made through a
bankruptcy procedure.
The bank
Kaupthing today is called Arion and the bank Glitnir is now called
Islandsbanki. The three
banks, now partly in foreign hands, are now limited to carrying out traditional
banking operations within the country.
Iceland did what it seemed like no other developed country was minded
to do: it imprisoned a bunch of bankers. The population prevented those responsible for the bad management
of the banks from receiving, as in other countries, huge sums of money when
they left office. A
parliamentary commission of inquiry published a 2,000-page report that points
to some 30 leaders of banks, government officials and the central bank as the
main culprits in the financial meltdown. The Supreme Court judged 4 of them condemning them to sentences of
between 5 and 6 years of jail.
The
crisis did not last for long. The
energetic policy, backed by the inhabitants yielded results quickly. Tourism and the fishing industry
benefited from the loss of value of the Krone, which fell against the US
dollar, from ISK 50-80 per dollar to ISK 110-115. They imported less expensive consumer goods but increased domestic
production. Three
years after the fall registered in 2009, there was a growth of 3% more than the
average of the European Union. In 2011
inflation was already 3% and the unemployment rate reached 5%, there was no
unemployment among young people, unlike other countries. It also helped the decision taken in 2013
by the European Free Trade Association Court that rejected the responsibility
of the State in foreign bank debts. The decline of the Icelandic crown was the decisive precondition
for the rapid re-establishment.After the crisis, the Icelandic kroon has
stabilized at about 30% below its pre-crisis value.
The post-crisis scenario:
The
latest data on the debt-to-GDP ratio was 68.5% down from the 95.1% cap after
the outbreak of the crisis, the USD / ISK pair is at 113.21, quite far from the
67 Of the crisis. The
unemployment rate reached 2.9% by the end of 2016. The level of inflation was
1.9%, even lower than before the crisis. The annual rate of GDP growth by the end of 2016 was 10.2%
reaching levels close to the rapid pre-crisis growth.
The soccer awakening
The
Icelandic surprise would start from the qualifying round to the Eurocup 2016, 10
matches, a complicated group with selections like Netherlands, Turkey and Czech
Republic. The
Icelandic side scored 17 goals, winning 6 games, 2 draws and 2 losses,
averaging 1.7 goals per game and only 0.6.
Iceland
was one of the reasons why the Netherlands were out of the EURO, and for the
first time in their history they came to compete in a European championship, looking
back, the Icelandic team had never participated in a big tournament and how Is
commonly said in football was always a "cinderella" a team with which
the big ones took for granted their victory either outside or at home.
Iceland would become the least populated country in a final phase
(it has more volcanoes than professional footballers), 8% of the population
moved to support their selection in France (Del Rio, 2016).
It would give the first blow in the Eurocopa when facing the
Portugal of Cristiano Ronaldo obtaining a tie and showing like a complicated
rival, with an iron defense and an effective attack. It achieved two draws and a victory being
in second place behind Hungary (which was also surprising).
In the quarterfinals
will happen something historic, the Icelandic team faced England and won a
dramatic victory 2-1, the English press catalog have been "Humiliated by a team led by a
dentist."
In the
knockout rounds, and after being made viral by chants and "Viking"
celebrations, the story would not be so enjoyable, 98% of Icelandic households
tuned a painful defeat against the local, the French team thrashed 5-2 to the
fierce Icelanders, who in fact after suffering the first goals lost
concentration but did not lower their arms until the end.
Today,
Iceland is not only in position 20 in the FIFA ranking, it is a nation that has
risen from the ashes after the most disastrous economic crisis of its history,
the small land of snow, home to beautiful landscapes is undoubtedly an example
for the world.
References:
Del Rio, J.
(2016). 7
curiosities from Iceland that you may not know. Recovered from:http://www.marca.com/futbol/eurocopa/2016/06/28/57726e99ca4741a95c8b460b.html
Iceland, the crisis of a country less
populated than Las Palmas. Recovered
from:Http://www.elmundo.es/elmundo/2012/04/23/economia/1335196633.html
Wuthrich, W.
(2015). The
Icelandic way to the financial crisis. Recovered from:
Other links:
No comments:
Post a Comment