As we have seen in the news, since the credit crisis and the collapse of Icelandic banks, that voters in Iceland have overwhelmingly rejected proposals to pay the UK and the Netherlands in the wake of the collapse of the Icesave bank – in fact with just one third of results counted, 93% of voters said “No” in a referendum!

As a result of the credit crisis and the collapse of the banking system, governments around the world pumped billions into the system to prevent complete melt-down. The British and Dutch governments paid compensation of £3.4 Billion (€3.8 Billion; $5.2 Billion) to customers directly affected as a result of the collapse of Icesave bank and are seeking reimbursement from Iceland for this.

It is right (perhaps?) that the Iceland Government have sought the views of Icelanders (perhaps our own government should have doe the same with us before doing the bail-outs they did!) before making any such reimbursement, but are they being short sighted?

Are the Icelandic people not seeing the bigger picture and will their economy become a wasteland where no world economy will risk investing again? The world economy is a small place these days and works as if it were one, which is more apparent today than it has ever been before.

With the advent of the Internet and with world economies being highly inter-dependent it is vital for economies to recognise how they could quite easily become black listed for what could be deemed to be ‘Bad Trading’. For example, would you lend to someone a second time when they had reneged on a deal or failed to repay a loan the first time? It is important to recognise that the Iceland government is not contractually due to pay the £3.4 Billion, but perhaps morally it is and if it wants to be taken seriously in the financial world economy again then the Icelandic government needs to take responsibility for the actions of the bank that failed on their own shores.

It is important for Icelanders to recognise that the Iceland economy benefited hugely from the positive effects of the boom times, but appear to be unwilling to payout when times are tough. They are not willing to put their hands in the pockets that were lined from profits made as a result of people believing in their banks when things were good, to help out the governments of the countries that helped them line their pockets in the first place.

The International Monetary Fund (IMF) has reached a “tentative” agreement to give aid to Iceland worth about $2.1bn (£1.3bn; 1.58bn euros).

It is the first Western country to have approached the IMF for aid since 1976.

Iceland said it should have immediate access to $833m if the “comprehensive stabilisation programme” is approved.

Its financial system is close to collapse after the country was forced to take over three of its biggest, debt-laden banks this month.

The Nordic nation’s troubles have had severe repercussions elsewhere in Europe. In the UK, individual savers and local councils have been unable to access funds deposited in Icelandic banks.

“The overarching goal is to support Iceland’s efforts to adjust to the economic crisis in a more orderly and less painful way” Dominique Strauss-Kahn IMF managing director

Icelandic anger at UK terror move

Governments fight economic onslaught

Iceland’s currency, the krona, has almost halved in value this year and banking transactions with other countries have almost completely frozen.

Less pain

The IMF said the tentative agreement aimed to “restore confidence” in the nation’s banking system, but warned that the country’s economy could contract by as much as 10% next year.

IMF managing director Dominique Strauss-Kahn said that Iceland had put together “an ambitious economic program” to restore confidence in its banking system, stabilise its currency.

This meant it deserved IMF funding as well as the support of the international community.

“The overarching goal is to support Iceland’s efforts to adjust to the economic crisis in a more orderly and less painful way,” Mr Strauss-Kahn said.

Sustainable plan

Iceland said the IMF funds would be used to stabilise its currency, reintroduce a flexible interest rate regime and to overhaul its financial regulation system, especially insolvency laws.

Iceland’s Prime Minister Geir Haarde said he did not think the IMF had laid out any unacceptable conditions.

“This program will enable us to secure funding and gain access to the necessary technical expertise required to stabilise the Icelandic krona and to provide support for the development of a healthier financial system,” Mr Haarde said.

“As a result, Iceland will commit to a sustainable long-term economic policy, and a plan for the recovery of the Icelandic economy,” he added.

Mr Haarde said that it was vital that the Icelandic public did not get lumbered with the debts which banks had built up when they were privately owned.

Before going to the IMF, it had been in talks with Russia for a $4bn loan, but discussions broke down.

News reported by The BBC

Savers with money in offshore subsidiaries of two collapsed Icelandic banks may not get all of it back.

Landsbanki Guernsey and Kaupthing Singer & Friedlander (Isle of Man) were stopped from trading earlier this week.

Money in these offshore funds is not covered by the compensation schemes operated in the UK or in Iceland, nor the chancellor’s guarantee.

Guernsey has no compensation scheme at the moment but Isle of Man will pay up to £50,000.

Many affected

There are thought to be thousands of British people who have savings with these banks in Guernsey and the Isle of Man.

Many have substantial funds there.

Opera singer Barbara Segal from Manchester retired to Sri Lanka and opened a dog rescue home.

“If you can’t trust a bank what do you do?” Barbara Segal

All her money was with Kaupthing Isle of Man.

She discovered the problems when she tried to move money at the weekend.

She could not do that and now cannot use her cash card.

She told Money Box, “I have in one account £187,000 – that’s my life savings – I live off the interest on that.

“And in a current account I have £6,500 which I use for emergency money.

“I just don’t know what to do – I have absolutely no other money.

“If you can’t trust a bank what do you do – keep it under your bed?”

Guarantee limits

The Treasury has confirmed to the BBC that the guarantee by the Chancellor Alistair Darling that no-one would lose money after Landsbanki and Kaupthing collapsed earlier this week, does not extend to these independent offshore islands which are not part of the United Kingdom, nor the European Union.

“In addition savers will get a share of proceeds of any liquidation, but that will depend on the outcome” John Aspden, chief executive of the Financial Supervision Commission, Isle of Man

Instead savers will have to look to the Isle of Man compensation scheme which was introduced on 7 October.

John Aspden, chief executive of the island’s Financial Supervision Commission, confirmed to Money Box that the scheme will apply to customers of Kaupthing Singer & Friendlander (Isle of Man).

“The compensation scheme does apply up to £50,000.

“In addition savers will get a share of proceeds of any liquidation, but that will depend on the outcome.”

On 9 October the court appointed Michael Simpson of PricewaterhouseCoopers as provisional liquidator.

No information is currently available about the assets the bank may have.

Other options?

The chief minister of Isle of Man has said Kaupthing Bank hf in Iceland gave a guarantee in 2007 to cover client deposits in its Isle of Man subsidiary.

“We have made representations to the United Kingdom government… to press the government of Iceland to honour Kaupthing’s guarantee.”

“We are doing everything we can… to enable a part payment to depositors and creditors to be made as soon as possible” Richard Garrard of Deloitte & Touche

Savers with Landsbanki Guernsey are in a more difficult position.

Guernsey has no compensation scheme.

It may introduce one later in the year but that may not help people who lost money before it begins.

That would leave customers of Landsbanki Guernsey queuing up with other creditors when the company is liquidated.

Administrator Richard Garrard of Deloitte & Touche told the BBC’s Moneybox programme:

“There are significant liquid funds available to the bank and we are doing everything we can within the boundaries of the law to enable a part payment to depositors and creditors to be made as soon as possible.”

News reported by The BBC

Iceland has nationalised its biggest bank, Kaupthing, and suspended trade on its stock exchange in an attempt to prevent further panic in the country.

Kaupthing is the third bank to be rescued by Iceland’s government.

The OMX Nordic Exchange Iceland is closed for trading for two days because of “unusual market conditions” and will reopen on Monday.

Meanwhile, Iceland’s Prime Minister Geir Haarde criticised the UK’s move to freeze Icelandic bank assets.

Mr Haarde said the UK used anti-terrorism legislation to freeze assets in Landsbanki in order to protect UK savings in one of its units, Icesave.

“We do not consider this to be a particularly friendly act. But we understand that the UK authorities need to act in the interests of their citizens,” he said.

“Over the past years, Iceland has pursued a policy of inflation targeting, similar to the UK..In the case of Iceland it was disastrous.” Jon Danielsson, Economist London School of Economics

Prime Minister Gordon Brown has condemned Iceland’s handling of the collapse of its banks and its failure to guarantee British savers’ deposits.

Mr Brown said it was “effectively illegal” and “completely unacceptable”.

Unusual conditions

Mr Haarde said Iceland had not decided whether to seek help from the International Monetary Fund to weather the crisis.

The country’s Financial Supervisory Authority said it took over Kaupthing to safeguard its domestic banking system.

All domestic deposits at the bank were fully guaranteed, it added.

On Wednesday, the UK Treasury arranged for ING Direct to take over the £2.5bn of deposits of 160,000 UK customers of Kaupthing’s online arm, Kaupthing Edge.

The Swedish central bank had already agreed to provide a loan to the bank’s Swedish arm.

Iceland’s government has now seized control of all three of the nation’s major banks. Landsbanki and Glitnir were taken over earlier this week.

The country of just 300,000 people has struggled to cope with the global financial crisis.

“The action taken… was a necessary first step in achieving the objectives of the Icelandic government and parliament to ensure the continued orderly operation of domestic banking and the safety of domestic deposits,” Iceland’s Financial Supervisory Authority said.

News reported by The BBC

Significant progress has been made over frozen UK investments in failed Icelandic banks, say the Treasury and the Icelandic authorities.

Arrangements have been agreed “in principle” for a quick payout to depositors in Landsbanki’s closed internet bank Icesave, they said.

The talks continue as world leaders meet to tackle the financial crisis.

Meanwhile, Chancellor Alistair Darling said he would unveil more details about the UK’s bank rescue plan next week.

His comments came in a BBC interview in Washington where he has been meeting finance ministers from the group of seven industrialised nations and US President George W Bush.

Mr Darling would not say whether the details would be released before markets opened on Monday.

“Significant progress was made on retail depositors of Icesave with arrangements agreed in principle for an accelerated payout to depositors” Treasury and Icelandic officials

“What we’re doing over the weekend is looking at specifics, how do we implement it and we’ll be making an announcement at the beginning of the week,” he said.

Policy makers from around the world are meeting to co-ordinate efforts to battle the crisis engulfing the global financial system and threatening to plunge major economies into recession.

Prime Minister Gordon Brown is to fly to Paris on Sunday to hold crisis talks with French president Nicolas Sarkozy before joining in a scheduled meeting with other leaders from eurozone countries.

Tensions have flared between Britain and Iceland as the collapse of Iceland’s banks have put billions of pounds of UK savers’ money at risk.

Iceland guarantees

The chancellor has said all UK private accounts affected by the bank crisis will be protected.

A Treasury delegation is in the Icelandic capital to seek assurances UK savers with money in collapsed Icelandic banks will not lose their deposits.

The group wants to establish a claims procedure for British depositors to get their money back as soon as possible.

Private deposits with collapsed banks Kaupthing Singer and Friedlander (KSF) and Heritable have been sold to ING Direct, where the accounts should continue to operate normally.

Private customers with Icesave are protected by the UK’s Financial Services Compensation Scheme, with Mr Darling promising compensation above the usual £50,000 limit to cover all deposits.

The first £16,000 of a deposit is meant to be guaranteed by the Icelandic authorities.

It is understood Iceland has now agreed in principle to honour this commitment.

British investors have roughly £4bn in the Icelandic bank.

“Significant progress was made on retail depositors of Icesave with arrangements agreed in principle for an accelerated payout to depositors,” said the statement issued by Treasury and Icelandic officials on Saturday.

‘Friendly atmosphere’

The UK government is also pressing for the quick return of almost £1bn of funds invested by councils and other public bodies, including charities, which the government has not offered to protect.

It is thought this will also be discussed over the weekend.

The Treasury delegation in Reykjavik includes officials from the Bank of England and the Financial Services Authority.

After a number of sharp exchanges between Gordon Brown and his Icelandic counterpart Geir Haarde, the countries have sought to show they are now working together.

“Delegations of Iceland and the United Kingdom have met in a friendly atmosphere in Reykjavík to discuss issues of mutual interest related to the current financial crisis,” the joint statement said.

News reported by The BBC

Talks are being held in Iceland to persuade the country’s trade unions to repatriate a sizeable portion of their foreign-invested pension funds.

To help stabilise Iceland’s troubled economy, they are also being urged to agree wage restraint, despite the country’s inflation rate of 14%.

But in return, the unions want Iceland to apply for EU membership – a move it has resisted for decades.

The government nationalised Iceland’s third largest bank, Glitnir, last week.

This sent the national currency, the Krona, plummeting. It lost a fifth of its value against the dollar by Friday.

Also, the nationalisation led ratings agencies to downgrade Iceland’s credit rating, and many analysts have said they doubt that Iceland can afford to bail out its other banks, which are also in trouble.

There’s pressure for a deal before markets open, on Monday, to prevent further turmoil.

By Ray Furlong BBC News, Reykjavik

News reported by The BBC