Bank Worries
February 10, 2009
Iceland's President Olafur Ragnar Grimsson said he doesn't have a lot of sympathy for Germans who have had their savings frozen in his country's troubled banks.
"The Germans must understand that people in Iceland have lost everything," Iceland's President Olafur Ragnar Grimsson told the Financial Times Deutschland newspaper in its Tuesday, Feb. 10 edition.
Grimsson said he opposes full compensation for Germans who had savings in the troubled Kaupthing Bank, saying that Icelandic taxpayers should not be held responsible for the entire financial crisis.
A spokesman for Germany's Finance Ministry called the President's comments "cryptic" and said that it doesn't change the government's expectation that German savers will get their money back.
Icelandic banks have already agreed to return money to foreign savers, and "the comments of a president don't change that," the spokeswoman told Reuters on Tuesday. In Iceland the president plays a largely ceremonial role.
Assets frozen for forseeable future
Germans have been repeatedly assured that their savings will be returned to them. Just before Christmas, German Finance Minister Peer Steinbrueck assured German investors that they would get back the full sum they had deposited. Kaupthing Bank offered similar assurances last week, although bank officials have made no promises as to when Germans will see their money.
Iceland's financial system collapsed in October of 2008, brought to the breaking point by billions of dollars in debt accumulated in an aggressive overseas expansion into financial services. The country watched in horror as its leading commercial banks failed and trade in its currency virtually ceased.
The collapse brought Iceland near bankruptcy and resulted in the government nationalizing Kaupthing Bank together with two other Icelandic banks.
Germany's banking regulator BaFin froze Kaupthing's retail operations in October in an attempt to keep assets in Germany after the Kaupthing head office in Iceland blocked customers' online access to accounts. BaFin says the bank had 30,800 customers in Germany who had more than 308 million euros ($398 million) in Icelandic accounts.
The crisis gave Iceland the unwanted distinction of being the first western European country to be rescued by the International Monetary Fund since a global financial crisis set in last year. Iceland received a $2.1 billion loan from the international body in November and was loaned an additional $2.5 billion by its Nordic neighbors.
Challenges continue for Iceland
The country is facing a shaky future. Iceland has said it expects its GDP to fall by nearly 10 percent in 2009 and inflation to be at 13.1 percent this year.
The crisis brought about the ouster of the country's center-right government and has caused talk of the island nation joining the European Union.
It would be "unfair" for foreign investors to expect Iceland to bear the burden for the financial crisis, Grimsson told the FDT.
The global financial crisis is not only Iceland's problem, but rather the problem of the entire European banking system, which urgently needs to be reformed, Grimsson said.
In the FDP interview Grimsson also lashed out at British Prime Minister Gordon Brown, who recently used anti-terror laws to freeze the assets of Icelandic banks in Britain in a bid to protect deposits there. British actions have only worsened the crisis, Grimsson said.