By overturning an earlier court decision an appeal court in Luxembourg now seeks to establish an investigation into “money laundering, fraud and criminal conspiracy.” Benjamin Bodig, lawyer for the Landsbanki victim group, says it “opens the door to discover the truth and could lead to its victims being recognised as aggrieved customers” according to an article in Wort.
In October it will be six years since Landsbanki collapsed. The Luxembourg clients, mostly elderly foreign pensioners owning property in Spain and France, who had taken out equity release loans from Landsbanki have now for years sought to have investigated how Landsbanki handled these loans and the investment that were part of the loans and also the actions of the liquidator, Mme Hamilius.
Special prosecutor in Iceland has already charged Landsbanki managers for market manipulation and breach of fiduciary duty. These charges are still being dealt with by Icelandic courts. In France there is now an investigation into the Landsbanki practices as well. From what I have seen regarding Landsbanki operations in Luxembourg there is good reason to investigate the bank’s operation, both before and after the collapse.
The actions against Landsbanki in France and Luxembourg would not have happened if it were not for the heroic attempts by the Landsbanki victim group to have these operations investigated. Their attempts in Luxembourg were met by remarkable lack of interest on behalf of the authorities, the height of which was when Robert Biever Procureur Général d’Etat, state prosecutor, sided openly with the liquidator, echoing her view that the Landsbanki Luxembourg clients raising concerns just did not want to repay their loans, as mentioned in an earlier Icelog.
As I have written earlier this “case has shown that when it comes to unified European financial sector it only works for banks, facilitating cross-border operations. For clients and consumer protection this sector has as many holes as a Swiss cheese. A food for thought: if cross-border operations only work for banks and not for clients they should not be allowed.”
Here are some earlier Icelogs on the remarkable story of this case that authorities in Luxembourg have ignored for so long.Follow me on Twitter for running updates.
According to a new IMF report on Iceland recovery in Iceland “is continuing and the growth outlook is positive, but crisis legacies continue to weigh on the economy. The government is undertaking efforts to address them but this entails significant risks.” IMF points out there are two legal avenues being discussed to release the old banks from capital controls, composition agreement that “would provide an agreed roadmap for exit and the other involving bankruptcy proceedings (liquidation) with an uncertain exit from controls.” – This is a clear hint to the Icelandic government, which way is the least risky.
At times, IMF reports are like a recording of the dialogue between staff and the authorities they speak to. In the newly released IMF report on Iceland there are some interesting parts where the staff says one thing and the authorities something else.
The main topics of interests, apart from capital controls, are the Housing Finance Fund, HFF, FME (the financial services authority) and fiscal policies. Also the Fund stresses the importance of a strong and independent Central Bank – especially interesting now that its structure is under review and a new governor will soon be appointed. Prime minister Sigmundur Davíð Gunnlaugsson has time and again strongly criticised governor Már Guðmundsson and CBI staff.
It is worrying that according to the IMF necessary and planned reform at the FME have not been carried out, there is insufficient funding for much needed IT reforms and on the whole the FME suffers from funding cuts. I.a. progress of new industry rules for risk management and asset classification has been slow, which does not bode well for financial stability.
Capital controls and the estates of the failed banks
The foreign-owned ISK, or “nonresident holdings of liquid krona” as the IMF calls it, amounts to 18% of GDP; 67% of gross reserves. These holdings “are slowly being released via the established FX auction mechanism.” It is assumed that consistent with Icelandic 2011 liberalisation strategy this crisis legacy might well be released by the end of 2016.
The easing of controls on the estates of the old banks is a different and more difficult matter.
The three old bank estates control an estimated 44% of GDP in (net) domestic assets, ie ISK assets in addition to 84% of GDP in (net) fx assets, crucially held overseas and owed to foreign or “non-resident” creditors. These assets are closed in by the capital controls.
The IMF estimates that once lifted the estimated fx outflow caused by Icelandic private individuals and corporate entities, also pension funds, might amount to 20-45% of GDP.
The question is how to resolve the issues of the estates, how to release them from the capital controls. Payouts can only happen when the estates are wound up/liquidated. As the IMF points out: “Two broad legal avenues are being discussed, one involving composition agreements that would provide an agreed roadmap for exit and the other involving bankruptcy proceedings (liquidation) with an uncertain exit from controls.”
The reader can be in no doubt as to which route the Fund favours.
In a video interview with the Financial Times finance minister Bjarni Benediktsson said that foreign creditors have already been paid billions of euros. From his words it could be understood that these funds were euros, earned by exporting Icelanders. The footnote to his words is that priority creditors have been paid ca. ISK1000bn, or ca. 55% of Icelandic GDP so far – but this comes from the estates’ own fx funds, mostly held abroad, not from balance of payment, BOP, sensitive funds. – Or as is pointed out in the IMF report: “Significant payments have also been made to priority creditors of the old bank estates from recovered external assets.”
Guiding principle in lifting the controls: transparency
Further to the general principles that should guide the lifting of the capital controls:
Staff encouraged a transparent, comprehensive strategy that addresses all potential outflows. The approach should be consistent with macroeconomic and financial stability, and conditioned on BOP prospects. Staff noted the importance of carefully considering the legal and reputational risks surrounding the strategy for addressing potential BOP pressures now locked in by capital controls, including the resolution of the old bank estates. Staff emphasized the benefits of a cooperative approach that would minimize risks to long-term growth, the prospects of which remain closely tied to economic and financial links with the rest of the world. In this context, staff welcomed the authorities’ recent organizational changes and planned engagement of advisors, which could help facilitate a resolution. Consistent with past advice, staff noted that appropriate use of incentives could help encourage lasting solutions. The authorities generally agreed with these points. They noted the Landsbankinn bond restructuring could be a useful development, but needs to be assessed in the context of a more comprehensive plan. With respect to the old bank estates, they stressed they would move on to other approaches (e.g., bankruptcy proceedings (liquidation)) should a cooperative settlement not materialize.
In short, the Fund favours carrots but the Icelandic government certainly is not going to throw away the stick, i.e. bankruptcy proceedings (although yes, the Fund gives warning words re orderly vs. disorderly exit from controls).
There is mutual understanding that the strategy to lift controls needs to be linked to a credible balance of payment analysis. “Staff welcomed the CBI’s ongoing BOP work and urged that it be the basis for discussion with key stakeholders.” – This is interesting since part of the task of the new foreign advisers apparently is a BOP analysis. As the Fund underlines, the CBI is working on it; the CBI analysis should be the basis for discussion with stakeholders, i.a. the creditors.
Further, here is an interesting insight into how the Fund vs. the Icelandic government perceives the situation: “Staff reiterated that a revised liberalization strategy should be paced to maintain adequate reserve coverage and that supporting debt management—including Eurobond issuances to maintain FX reservees as repurchases to the Fund take place—will be a necessary component. The government expressed concern with the higher debt and interest costs from such issuances. Staff emphasized the precautionary role of reserves and noted that public sector debt levels would not change.”
The risks in lifting the capital controls
The IMF is not trying to minimise the various risks threatening the Icelandic economy – the word “risk” is used 66 times on the 62 pages (where ca. half of the pages is mostly diagrams).
Here the risks regarding lifting the controls is neatly summarised – and some of it is beyond the control of Iceland:
Staff and the authorities agreed that risks are tilted to the downside. A protracted period of slower global growth could dampen exports and foreign direct investment. Surges in global market volatility have so far had only muted direct effects on Iceland but a sharp deterioration in external financing conditions could complicate refinancing of large external payments coming due during 2015–16 and delay the easing of capital controls. Efforts to resolve the old bank estates could result in faster capital account liberalization, boosting confidence and investment and raising long-term growth. However, missteps could result in a more protracted impasse leading to a weaker business climate, lower investment, asset bubbles from locked in liquidity, eroding competitiveness, and weaker growth. Lifting capital controls before the necessary conditions are in place could destabilize the krona, lead to higher inflation and reserve losses, and lower confidence and growth. Even without liberalization steps, deeper depreciation pressures could emerge that could be difficult to counteract.
As to deciding what to do and when clearly implies some “damned if you do and damned if you don’t”:
It was known when capital controls were imposed that the negative effects would grow faster than the benefits as time went by, and the authorities are resolute to take significant steps towards removing the controls in coming months. The steps taken will be conditions-based. However, there is no risk-free liberalization of capital controls, and the microeconomic costs are accumulating. The risks must therefore be weighed against the costs of delay.
By now, many countries have tasted the intoxicating mélange that capital controls are and there is abundant experience of their effect. It is well known that with time, the benefits originally reaped by capital controls dwindle and the negative impact increases. It is never easy to tell when exactly this turning from positive to negative is reached. Considering how loudly Icelandic business leaders are now complaining about the deadening effect of capital controls it is clear that at least for some businesses this point is already reached.
In general, creditors want to negotiate and creditors to the failed Icelandic estates do not seem to be any exemption from the general rule. As I have underlined earlier, there are strong forces in Iceland, with strong interests, pleading for the “disorderly” and “un-cooperative” approach to the estates. With the IMF report the Icelandic government now has some clearly spelled out advice in words such as “orderly” and “cooperative.”
*All emphasis in quotes is my own.Follow me on Twitter for running updates.
So far, every move by the Icelandic government towards lifting the capital controls has taken more time than anticipated and yielded less than promised. Now a managing committee to steer a whole crowd of foreign advisers is in the making: again, it was announced a while ago and although the foreign advisers have already had meetings in Iceland the managing committee is still not in place. If this isn’t to be yet another underwhelming exercise the government has to resolve the tension centring on an orderly composition agreement for Glitnir and Kaupthing or a disorderly bankruptcy and “ISK-ation” creating a mountain of foreign-owned ISK – and whether the Landsbanki bonds agreement passes or not. After all the political rhetoric the solution has to look like victory – but even that would not be too difficult.
The foreigners are coming – not the foreign creditors but foreign advisers. After shunning any foreign assistance the government now has it in abundance. According to Rúv, JP Morgan will advise on the financial side, White Oak Advisory London will advise on the legalities and to figure out what needs to be done there is Cleary’s Lee Buchheit, in Iceland of Icesave fame, and Anne O. Krueger IMF’s deputy manager 2001-2006.
Deciding on foreign advisers has clearly been a tortuous step. Already in April, two months ago, the rumour was that the names would be announced “next week.” Having gotten this far is promising. What is less promising is that in order to orchestrate these formidable forces there is to be an Icelandic managing committee, which – as so often – the government seems to be in great difficulty to agree on. The setting up of this committee was announced some weeks ago, then apparently just about to happen, but no, so far no committee although the foreign advisers have already visited Iceland.
The non-existent managing group is unfortunate in itself but even more so because the delay indicates that the government has not yet made up its mind as to how to proceed regarding the lifting of the capital controls. The greatest obstacle is, as explained earlier on Icelog, how to resolve the estates of Glitnir and Kaupthing: the government still seems to dally with the idea of bankruptcy, including converting fx assets into ISK, in effect an “ISK-ation”of the assets.
In addition, the government has sent the Central Bank of Iceland on an uncertain course, apparently because of a disagreement within the government. With reforms in 2009 the independence of the bank was strengthened. The question is if there will now be a U-turn with the appointment of a new governor.
The two party leaders, prime minister Sigmundur Davíð Gunnlaugsson and minister of finance Bjarni Benediktsson, have oscillated between optimism and pessimism as to how hard the task was and the time it would take to take decisive steps towards lifting the controls. It is now over a year since the present coalition led by the Progressive Party with the Independence Party came to power. In terms of action regarding the capital controls that is mostly a lost year.
The all-Icelandic working group, set up in November, presented its results in March but there was little there in terms of realistic scenarios or solutions. Apparently the approach to Glitnir and Kaupthing and composition or not, i.e. “ISK-ation,” split the group.
A solution leading to a market access – or a specific Icelandic solution
The next stages of the winding-up proceedings must safeguard financial stability and ensure that domestic entities have access to foreign credit markets. Finding a comprehensive solution to the estates’ affairs is a prerequisite for lifting of the capital controls.
The above is how the CBI spells out in its latest Financial Stability Report the goals regarding the lifting of the capital controls. There has to be a comprehensive solution – and any solution that doesn’t ensure access to international credit markets is no solution at all.
Market access is an excellent measure. A specific Icelandic solution, which converts fx assets into, for foreign creditors, useless ISK, thus creating new mountains of foreign-owned ISK for which there is not enough fx, does not seems to be a market-opening solution.
An important lesson from the Greek and Argentine default is that the large majority of creditors do indeed want to negotiate a deal. The Icelandic situation is not comparable to Greece and Argentina – Iceland isn’t about to default – but as explained earlier on Icelog the state could incur liabilities if creditors deem the state is blocking payments from the estates or impairing recovery, such as inducing “ISK-ation.”
So far, the government has refused to negotiate with Glitnir and Kaupthing creditors, clinging to its mantra that these are estates of failed private banks. True, but solving the ISK problem of the estates is a key step towards lifting the controls, truly an issue of supreme national importance. By hiring foreign advisers, the government seems indirectly to accept it has to negotiate.
The three problems that need to be solved
It is often heard in Iceland that surely the problems underlying the capital controls are fiendishly complicated. In a way, they are actually not complicated though certainly not risk free. Three things need to fall in place:
*ISK assets of Glitnir and Kaupthing, in total ISK450bn (end of 2013)
*Remnants of the old ISK overhang (“hot” foreign-owned ISK which originally caused the outflows that demanded capital controls), in total ISK322 (at the end of February 2014)
*The two Landsbanki bonds of which ISK226bn is still unpaid
The Kaupthing ISK assets are mostly tied in its ownership of Arion. If Arion could be sold for fx the Kaupthing ISK problem is solved. Glitnir poses more of an ISK problem: selling Íslandsbanki for fx will only solve ca. half of its ISK problem. Here, the classic solutions would be a write-down, extended pay-outs or a combination of both.
The original overhang no longer poses a major problem. Judging from the CBI auctions these offshore-ISK owners do not seem strongly inclined to leave the high interest environment in Iceland for the low interests in Europe and the US. As long as interests remain low in the Western world the international environment is favourable for lifting the controls – but this favourable situation will of course not last forever.
On May 8 an agreement on the Landsbanki bonds was signed. The CBI is now assessing the agreement and the exemption from controls that is part of the agreement. Application for exemptions seems to have been sent in some time after the agreement was reached, which together with vacation time explains that it is taking the CBI some time to conclude on the Landsbanki bonds packet. As far as I understand the government will not make its own assessment but follow the CBI advice on the agreement.
New Landsbanki is state-owned, those who negotiated on behalf of the bank will have kept the ministry of finance informed and the new agreement broadly followed what the CBI had outlined. Yet the minister of finance, who formally needs to accept the agreement, has expressed some doubts.
In an interview with Rúv July 6, Benediktsson said he foresees a sale of Landsbanki. He envisages that the state keeps 40% of Landsbanki with the rest sold off, limiting other shareholders to 10-20% share of the bank. Strangely enough Benediktsson did not mention that according to the bank’s CEO last December the bank would need to extend its debt to the Landsbanki estate – and, as if in a parallel universe, the minister did neither mention this nor the Landsbanki bonds agreement.
Who is really in charge?
During the election campaign last year the Progressive Party repeatedly stated that there would unavoidably be money for the state coffers from the resolution of Glitnir and Kaupthing. These funds should be used for a debt relief for those who were too well off to have profited from earlier debt relief. When the debt relief plan was presented in November it turned out that it was funded with a banking levy, both on living and dead banks.
At the time I took it to imply that after all Benediktsson, known to doubt funding from the resolution of the estates, did after all have the upper hand in the government. That seems less certain now. Reviewing the first year I would now rather conclude that the prime minister clearly has enough political strength to decide whatever he wants to and then lets Benediktsson pick the policies the prime minister does not have strong views on. This is worrying because political clientilismo has long been strongly connected to the Progressive Party.
Whatever the power divide, this government clearly suffers from lack of communication. Time and again the prime minister says one thing and the minister of finance another. Most tellingly, the disharmony is spelled out in lack of action, on lifting the capital controls in general and now, specifically, in appointing a managing committee and deciding on the next steps.
The CBI under siege
Part of the disharmony within the government has been policies regarding the CBI. After much back and forth – if there should be a reform, three governors instead of the one now, if present governor Már Guðmundsson should continue or not – the position of governor was finally announced but without any clarifications on changes or not.
Guðmundsson has now applied, as have nine other candidates. None can really match Guðmundsson’s professional qualifications but there is a lot of speculation that professor Ragnar Árnason is the government’s favourite. Some doubt his qualifications – his expertise is fisheries economics – but the rumour is persistent. Another candidate, and now possibly more likely though he is less mentioned, is professor Friðrik Már Baldursson.
Morgunblaðið, with former prime minister and leader of the Independence Party Davíð Oddsson as its editor, has waged a forceful campaign against Guðmundsson. The story is that after Guðmundsson took office as governor his salary turned out to be less than he had been made to understand it would be. He sued the bank but lost. Morgunblaðið exposed earlier that the CBI had paid his legal bill. The National Audit Office has now investigated the matter and in its report finds no fault with Guðmundsson. Morgunblaðið claims the investigation is untrustworthy because the sister of the director of the National Audit Office is the head of internal audits at the CBI. In Iceland, many feel certain that Oddsson, who was ousted as a CBI governor, will not rest until Guðmundsson has been driven out of office, even though Guðmundsson played no part in ending Oddsson’s CBI career.
Many feel that the selection process has already been undermined by the choice of a selection committee, which has two lawyers and only one economist. One of these two lawyers, Stefán Eiríksson, is at present the head of the Reykjavík police and is applying for a new public position, as the head of a governmental body that oversees transport in Iceland. Central Banking has already published an article about what it calls “a bizarre committee.”
Who will be chosen as the next CBI governor will be an important indication as to whether the government respects the independence of the bank – or not.
No pay-outs to creditors until the resolution route is chosen
There has been much toing and froing from prime minister Gunnlaugsson and finance minister Benediktsson regarding how and when the controls could be lifted. Considering how tortuous every step has been there is little to underpin optimism on a quick solution as to what to do. Yet, there seems to be determined optimisms amongst the creditors and they have shown remarkable cohesion.
The foreign advisers will most likely need some time to delve into the Icelandic situation. But the fundamental thing is for the government to make up its mind as to what needs to be done and what its aim is and yes, who should be on the managing committee. The lack of clarity explains the sluggish moves so far and in spite of advisers, the latest moves are not entirely convincing.
In the Landsbanki estate priority creditors will get the lion share of the estate’s assets and they have already been paid out along the way. But that has now stopped and since last year the CBI has not given the necessary exemptions. The CBI has also closed down the route for Icelanders to buy foreign life insurance and make limited capital payments towards pension: buying insurance was legal but the capital transfer goes against the controls although this has been going on for some years. This hardening attitude can be interpreted in various ways: that the controls are here to stay, that the CBI is showing the government its tough side etc.
Glitnir and Kaupthing now hold ca. ISK1000bn of fx, that could mostly be paid out without a risk to Icelandic financial stability. However, pay-outs are only possible once the estates are resolved. And they cannot be resolved until either a composition agreement is in place or the estates forced into bankruptcy.
The pension funds and the capital controls
Voices in Iceland have complained that creditors will be able to exit before the Icelandic pension funds. Before the collapse, the funds placed 30% of its investments abroad, which means that its Icelandic investments and the Icelandic investment environment is, under all circumstances, crucial to the funds.
Icelandic business leaders have increasingly voiced their frustration and CEOs of both big and small companies have aired the possibility of moving their companies abroad. Fewer investment options in Iceland due to the capital controls would raise the cost of the controls for the pension funds. It can be argued that lifting or easing the controls, thus improving the business environment in Iceland, is more important for the funds even though they have to wait for a while to invest abroad.
With the sluggishness so far, the advisers and the lost times it now seems unlikely that any negotiations with the creditors will start until September, at the earliest. Even more so, if the advisers will be given the task of doing all calculations, balance of payment and everything else, from scratch.
Getting foreign advisers on board has been seen as a necessary prerequisite for negotiations. That may be true – but hiring advisers and consultants is also a tried and tested, and usually an expensive, option when no one has a clue what to do and those in charge cannot make up their minds.
Complicated but not complex solutions
Given the fact that over the last few years the CBI has worked hard on issues related to the estates and capital controls it is frustrating that the government does not dare negotiate with the creditors but chooses to start a time-consuming process with an apparently unclear course and yet another committee with a difficult birth.
This is all the more frustrating because there really are some relatively simple solutions in sight. This is not to say that negotiating would be easy – no doubt the creditors will drive a hard bargain. It would be strange if they would not. But it is clear that the creditors do want to negotiate and find an end to this matter.
Last November, Lord Eatwell presented an independent report at the behest of Glitnir on macroeconomic balances and capital account liberalisation in Iceland where he pointed out balance-of-payment neutral solutions to the foreign-owned ISK. I have heard others air the same opinion. This is just one of many ways that could be explored. Using assets owned by the CBI asset holding company for swaps is another. Und so weiter.
According to the rumour mill in Iceland the creditors do not want to negotiate. Nothing could be more far from the truth. In general, creditors do wish to negotiate and the same counts for creditors to the Icelandic estates. This is, as far as I can see, a way to create a reason for not even attempting to negotiate but go straight down the bankruptcy route. Any solution has to look like a big fat victory for the Icelandic government – and even that would not be too difficult.
Again, having found experienced advisers might seem promising. But if the course of events will be a version of “if you don’t know where you are going you ain’t likely to get there any time soon” the outlook is bleak. Apart from the political disharmony it is no less worrying that there are strong forces pushing for bankruptcy: some Icelanders are apparently hoping to make a lot of money out of the tumult it would lead to and political favours have long been part of Icelandic politics. All of this is worrying for the Icelandic economy and for all those living in Iceland.
*Update July 9 2014: here is the press release, sent out today, regarding the foreign advisers. After announcing a managing committee, as mentioned above, to work on behalf of the Ministry of Finance and Economic Affairs and the so-called “Ministerial Committee on Economic Affairs and the Steering Group on Removal of Capital Controls” it turns out that no formal group will be set up. Instead, four experts have been engaged to work alongside the foreign advisers: Benedikt Gíslason adviser to Benediktsson; Supreme Court attorney Eiríkur Svavarsson, earlier in the In Defense group, fighting against the Icesave agreement; Freyr Hermannsson head of reserves management at the CBI and Glenn Victor Kim, currently at Moelis & Co and LJ Capital, served previously as senior adviser to the German Finance Agency re the European Financial Stability Facility (EFSF). Kim will lead the work of the four external experts. – According to the press release, the first task of White Oak Advisory and Anne Krueger will be “to set out the macroeconomic conditions considered necessary with regard to maintaining economic stability.” Tomorrow, the report of the IMF mission to Iceland in spring is expected to be published. Both the IMF and the CBI have worked extensively on these issues. Hopefully, the new advisers will not need to start from scratch here.
“I’m just doing it for you guys,” Birkir Kristinsson was caught on tape saying to one of his fellow bankers at Glitnir. Kristinsson, the brother of Magnús Kristinsson – owner of fishing industries in the Vestman islands and a big borrower in the Icelandic banks – has been sentenced to five years in prison together with three Glitnir colleague two of whom also got the same prison sentence. The fourth was sentenced to four years in prison. Kristinsson has appealed and so will the three others most likely do.
This case is not one of the big ones involving major investors or bank managers and the numbers are not as high as in some of the other cases, most noticeably the al Thani case. It was however an important judgement because there are other similar cases snarling their way through courts.
Three Glitnir employees – Elmar Svavarsson, Jóhannes Baldursson and Magnús Arnar Arngrímsson (also accused in the Aurum case, acquitted in the Reykjavík District Court; case appealed to Supreme Court) – were indicted for loans to a fourth Glitnir employee, Birkir Kristinsson.
The loans, totaling ISK3.6bn, €23m, were issued between December 2007 and July 2008 to a company owned by Kristinsson, used to buy shares in Glitnir, thereby effectively creating a misleading share price. In addition, the three employees ignored the bank’s rules on lending. Later, the three made sure Glitnir i.a. bought back own shares at double the market price to insulate Kristinsson’s company from losses. Kristinsson was indicted for participating in the scheme.
Svavarsson and Baldursson, as well as Kristinsson were sentenced to five years in prison and Arngrímsson to four years. They were sentenced for market manipulation and breach of fiduciary duty. The four bankers are, with the exception of Birkir Kristinsson, not household names in Iceland. However, this is yet another banking-collapse case from the Office of the Special Prosecutor. Since there are other similar cases this verdict is indicative but none of these cases is over until ruled on by the Supreme Court.
The verdict, from June 22, is here, in Icelandic.Follow me on Twitter for running updates.
Earlier this year, Djúpivogur – a fishing village on the East coast about as far from Reykjavík as possible – suffered the same fate as some other fishing villages in Iceland: the fishing quota that sustained the village was moved to a village close to Reykjavík. But instead of suffering in silence the people of Djúpivogur have made a video that resonates the struggle of small communities around the globe in a changing world.
The Icelandic fisheries policy, built on transferable quotas that follow the vessels, has secured that fishing is a thriving business in Iceland and at the same time it has helped secure sustainable fishing. Or that is the official story. This apparently successful fishery policy has however been less successful in securing livelihood for small fishing villages along the Icelandic coastline: as fishing industries get bigger and more concentrated some villages have lost quotas or, in some cases, the quota has sailed away as fishing vessels are harboured in new places.
End of March, this happened in Djúpivogur, with just under 500 inhabitants. The fishing quota, which had been processed in the freezing plant, would now be landed and processed in Grindavík, meaning that around 50 people would lose their jobs, a heavy blow for this small village and the whole economy in this part of Iceland. The owners of the freezing plant, who planned to operate only in Grindavík, offered people help to move to Grindavík, where they could get work.
Some of those hit by the changes accepted being moved to Grindavík. But others thought of a different reaction: a video (brilliantly made by Arctic Projects) in Icelandic was made to make it clear to people what was going on. The video went viral in Iceland, became a news topic showing a different aspect of the planned changes in Djúpavogur. This had already made news at the time it happened but as often with such news, it only got attention for a day or so.
Following the video and the attention it caused the owners of the fishing industry decided to postpone the move for a year – and Djúpivogur suddenly got plenty of attention, also from politicians who have so far mostly ignored this unfortunate side-effect of the Icelandic fisheries policy: the fisheries thrive as a business but small villages live and die at the whim of these businesses. It’s not an easy situation to resolve but the people of Djúpivogur have given faces and voice to what happens when the quota sails away. Djúpivogur has been a thriving place, with start-ups and other creative businesses attracting young people back home after education and work experience elsewhere. It now demonstrates the fishery dilemma in a nut shell: it’s better for business to have transferable quotas but it’s the death of communities when the whole quota in that village is moved elsewhere.
As the introduction to the video says:
The purpose of this video, made on behalf of the Djúpivogur local council, is to alert people and politicians to the plight of Djúpivogur. The community has now fallen victim to the flaws of the Icelandic fisheries management system when it comes to small communities. Since 1984, the Icelandic fisheries management system has been based on individual transferable quotas that are allocated to individual vessels. If the vessel’s home harbor changes, the fishing quota goes with it. Although the stated aim of the fisheries Act is to “promote employment and settlement throughout Iceland”, its implementation, supported by politicians, is actually a serious threat to small communities around the country. The people of Djúpivogur demand of the government that it guarantee the community a fair share of the fish stocks belonging
to the Icelandic people.
The people of Djúpivogur were widely heard in Iceland. Here is the English version, which introduces this problem to the wider world where, though for other reasons than in Iceland, many small communities fight for their lives. It is difficult not to be touched by the emotional thrust of this striking little video story.
Take five minutes to watch this video and contemplate this Icelandic story from Djúpivogur, a small community that feels it has plenty to offer its inhabitants if only the transferable quotas were allocated not only according to the needs of the fishing industry but also in tune with the needs of those who live in the fishing villages. The video gives an insight into life in Iceland, the certain harshness and unpredictability – and the resilient wish to develop further the good life at Djúpivogur – a striking parallel to life in so many other parts of the world.Follow me on Twitter for running updates.
I have often been asked for Icelandic travel tips. Finally, here is a mini-guide to some of my very favourite places in Reykjavík and what to do and see. Yes, there is much more to see and do but these are just some of my un-missables if you spend a few days in Reykjavík. Sorry, no hotel tips because I simply have no insight into that part of visiting Reykjavík.
Whereas fast food is expensive in Iceland fine dining comes at a very reasonable price – and is quite often rather good. Here are some that don’t disappoint (but don’t expect really good wine; also the service is normally very friendly but often not very professional).
Grillið (The Grill) at Hotel Saga is one of the oldest fine-dining restaurants in Reykjavík and probably the best right now. It’s on the top floor of a luxury hotel with an absolutely fantastic view over Reykjavík and the surroundings. It’s now run by Siggi Helgason (he’s to the left on the website photo), a dedicated young chef who has seen the world. I have to declare interest, family relations. Siggi is very interested in making the most out of all things Icelandic, also very Nordic style cuisine but he had worked in England, Ireland and elsewhere and picked up good things on his trips. A seriously professional cook with a good kitchen team.
Dill used to be in the Nordic House, by the University of Iceland campus, built by the famous Finnish architect Alvar Aalto and worth the trip just for that. However, the restaurant has now moved downtown, haven’t been to the new place yet. The Dill cuisine is the Icelandic version of the Nordic cuisine and the staff has always been enthusiastic about their food.
Other good places, all in the centre
Lækjarbrekka has been around for decades and has had a revival recently – lovely ambience and great food.
The restaurant at Hotel Marina, right on the harbour as the name indicates, is very lively during happy hour and in the evening, also good for lunch.
Kopar is a newish restaurant by the harbor – always seems packed and in the evening heaving with partying Icelanders, more though in winter than in summer. Try to get one of the tables upstairs by the windows with a truly fantastic view over the harbour. Crab and seafood is their specialty.
Hotel Holt is a luxury hotel from the sixties, gone downhill a bit but it’s full of Icelandic art from early 20th century – go to see Kjarval there in a private setting and the bar is just great for seeing it. This is a place for fine dining, I’ve had some great food there but also pretty unmemorable food. Dark wood, dated but in an interesting way.
And just off the centre, out on the Reykjavík beach is Nauthóll, see below.
Fast food – but not really
Don’t be tempted to have a bite at fast food joints – except of course Bæjarins bestu, a hot dog stand in the centre – because fast food is unreasonably expensive in Iceland and normally not very good. Rather, if you are hungry go to a supermarket, buy smoked salmon and “seytt rúgbrauð” – dark, slightly sweet rye bread – and enjoy with butter and Icelandic cucumber. Look out for “skyr,” slightly sour dairy product, similar to German “Quark,” delicious on its own or with milk and muscovado/dark sugar; “flatbrauð,” “flatbread,” is unleavened bread, good with smoked salmon or smoked lamb, “hangikjöt.” “Harðfiskur,” literally “hardfish,” is dried fish, tastes a bit like prawn crackers but the fish taste is stronger without being overpowering.
A good place to go shopping for food is Melabúðin, Hagamel 39, in the Western part of Reykjavík. A family-run shop with all sorts of delicious Icelandic food, also from some small producers. It’s open until 8pm, pretty crowded around 6pm but that is part of the charm. I love going there because I invariably run into people I know.
Sægreifinn, the Sea Baron, is in a barack by the harbour, where the cooks is an old fisherman whose speciality is lobster soup. He also offers minky whale (but some restaurants have a sign saying “meat us, don’t eat us” meaning they don’t serve whale meat, for animal welfare reasons; difficult to hunt whales without making them suffer) and other fish on skewers. – An original place, best for lunch. I normally don’t go there, find it slightly too touristy but it is much loved by many foreigners.
The best coffee is at Kaffismiðjan – on a little side street off Skólavörðustígur, close to the landmark Hallgrímskirkja (on the hill). A great hang-out place with good cakes etc and open wifi and my absolute favourite when I’m in Reykjavík.
Mokka is a café that hasn’t changed since it opened in the sixties. Also a gallery with art of varying interest but always great atmosphere. Their hot chocolate is famous.
There are three Súfistinn cafés but my favourite is in the Mál og menning bookshop on Laugavegur 18.
Because I always go to Kaffismiðjan I haven’t yet tried out Kaffifélagið on Skólavörðurstígur who many say is really the best café. I can’t say because yes, have yet to try it and intend to do so in summer.
A great place to visit in the evening is Kex Hostel, an incredibly cool and quirky place, close to the harbour, where you meet a great selection of young Icelanders (and the slightly older ones, when I’m there). In the evening there is often live music. It’s open from breakfast until late, serves food all day. In the office building opposite the Office of the Special Prosecutor has its abode so that building is full of secrets from the banking bubble times in the years up to October 2008.
A propos hotels: I would stay at Kex if I were traveling to Reykjavík as a tourist: well located, quirky and accommodation offers for all budgets.
Before I knew other places intimately I assumed that modern gold and silver jewelry was something found everywhere but that is of course not at all the case. However, in Iceland there is plenty of choice when it comes to contemporary jewelry. I doubt there is another city in the world with as great a choice of it as is found in Reykjavík. There is historic reason for it: in the decades after the war not much could be imported to Iceland, Icelanders were flush with money and some of it was spent on in the silver- and goldsmith workshops, set up under Danish influence. The best thing to buy in Iceland is silver jewelry, both in terms of price and design. I doubt there is another city in the world with as great a choice of contemporary jewelry as is found in Reykjavík.
Skólavörðustígur and Laugavegur are filled with little shops of Icelandic design, plenty of jewelry shops around there. Also shops with contemporary clothing and Icelandic design.
Cintamani and 66North are Icelandic sport labels, shops in Bankastræti. Cintamani has really cute children’s clothes. The fishmongers at Borough market wear 66North!
A quirky place is the antiquariat on Klapparstígur 25-27, off Laugavegur – huge for a second hand book shop, stuffed with books, mostly in Icelandic but also many in other languages, and some weird things.
One of the best music shops in the world. I know, Icelanders are prone to hyperbole but this isn’t saying too much, 12 tónar at Skólavörðustígur 15, of course with all kinds of Icelandic music and other good music.
Art and museums
Contemporary Icelandic art is thriving. The most interesting galleries are i8 in Tryggvagata, right by Hotel Marina and the Sea Baron. Hverfisgallerí at Hverfisgata 4 is a recent addition to the Icelandic gallery scene (I think, can’t remember the name). Further up the street on Hverfisgata there is the by now old rebel and wild-at-heart Kling and Bang.
You find the two main public museums/galleries in the city centre, the National Gallery, a lovely café there, good for lunch. The same at Reykjavík Art Museum. In the East part of town there is Kjarvalsstaðir, dedicated to works by the greatest Icelandic artist, Kjarval. Seen in connection to art during his time (1885-1972) his work is truly original, inspired by Iceland in a very special way.
For weirdness and total experience there is the Einar Jónsson museum, by Hallgrímskirkja. The museum was designed by the artist (1874-1954) himself who is spiritually connected to the British arts and craft and symbolism. His bedroom is normally not open but ask if you can possibly see it.
Sigurjón Ólafsson was a sculptor who studied in Denmark before moving to Iceland with his Danish wife. They lived in Laugarnes, close to the container harbour of Sundahöfn. There is now a beautiful little museum there and a café. There are also regular concerts at the museum.
To do and see
Harpa is the concert hall on the harbour. Half-built when the Icelandic banks collapsed in Oct. 2008 it was then finished after a hefty debate if such extravagance was permissible in times of crisis. The glass “case” encasing it is by the Icelandic artist Ólafur Elíasson who did the sun installation at Tate Modern.
The best thing about life in Iceland are the swimming pools – plenty of them around in Reykjavík and around the whole country – with varyingly hot tubs and normally also with a sauna/steam bath. My favourite is on the outskirts of Reykjavík, Seltjarnarnesslaug. A good time to go is in the morning or after a long day; open until 8 or 9pm, depending on the season. I like Seltjarnarnesslaug because the water is salty, instead of chlorine.
Those who like a properly long pool go to Laugardalslaug. Swimming in Iceland is a website with all you need to know about this topic. Even if you don’t particularly like swimming don’t miss out on the experience of swimming the Icelandic way: outdoors, no matter the weather.
All pools have outside dressing rooms (yes, closed-off, separate for male and female) and that is for me part of the true experience of swimming in Iceland. Again, try it, best in an Icelandic company.
Nauthólsvík is the Reykjavík beach. You don’t need to be a heroic viking, there is a hot pool there but if you want to dip your toe into the Atlantic that’s the place, especially if you stay close to where the hot water flows into the sea there. The facilities are modern and I love the vibe there, as well as the cold water. Not to be missed. Right by there is a nice restaurant, Nauthóll, good both for lunch and dinner – modern architecture, glorious view.
There is of course the famous Blue lagoon – totally worth it, also for the architecture and being in the middle of a lava field. You can take a bus out there, ca. 45 min. drive (it’s close to Keflavík Airport).
To see a bit of Iceland in a day, do the Golden Circle tour, covering the glorious Þingvallavatn, a huge lake in a sunken lava field, the famous Geysir (which has given its name to all hot springs in the English language) and the great waterfall, Gullfoss (the “gold waterfall”).
There is now another spa/lagoon type of pool at Laugavatn, ca. 60 km east of Reykjavík, passing Þingvallavatn. Haven’t tried it yet but it looks great on photos.
No need to mention whale watching, plenty of offers but check out this company that runs tours from the old harbour, close to Hotel Marina and Sea Baron.
The Northern lights season has passed for the time being. The weather is changeable, you will come to understand the word if stay for more than just a few days. Here there is all you need to know about the weather in Iceland, right from the Icelandic meteorological institute, Veðurstofan. But for me, the weather in Iceland is always just great because no matter what, it is always an experience.Follow me on Twitter for running updates.
Acquittals in major cases brought by the Office of the Special Prosecutor have made headlines in Iceland and elsewhere. In addition, it has now surfaced that an expert, called in to be a lay judge in the Aurum case is the brother of Ólafur Ólafsson, one of the four indicted in the al Thani case. Jón Ásgeir Jóhannesson, at the time Glitnir’s largest shareholder, was indicted in the Aurum case, together with Glitnir’s ex-CEO Lárus Welding and two Glitnir employees. Both were acquitted.
Jóhannesson has however earlier been found guilty in two cases but in both cases the prison sentence was suspended. In February last year, he was sentenced in a tax fraud case to 12 months in prison, suspended, and fined for ISK62m, €400.000. In June 2008 Jóhannesson was sentenced, as part of the long running Baugur case, to three months in prison, also suspended. Following both sentences Jóhannesson is prevented from sitting on boards of companies for some years.
In a nutshell, the Aurum case concerns Glitnir staff indicted for breach of fiduciary duty, i.e. for lending money without necessary collaterals and guarantees. Indeed Glitnir lost the ISK6bn, €40m, that the bank lent in this saga. Jón Ásgeir Jóhannesson, who profited from the loan by getting €6,5m, of the loan (because Fons, the company that got the loan and couldn’t repay it, apparently owed Jóhannesson this sum of money) was charged for aiding in the alleged illegal activities. Numerous emails brought up during the oral hearings showed his direct involvement and severe pressure on finalizing the loan, which he profited from.
Ólafur Ólafsson was indicted on similar grounds in the al Thani case last December. Reykjavík County Court found him guilty and he was sentenced to 3 1/2 years in prison. That case has been appealed to the Supreme Court. In Iceland no one goes to prison until the Supreme Court has ruled in an appealed case.
In addition to two District Court judges Sverrir Ólafsson professor at Reykjavik University was called to be an expert judge in the Aurum case. Over the weekend, Icelandic media pointed out that Ólafsson is the brother of Ólafur Ólafsson. It is still unclear if this will have consequences. (Foreigners sometimes think that everyone must know everyone in Iceland – well, not quite and Ólafsson is a common last name).
Judge Guðjón Marteinsson and Stefán Ólafsson acquitted the four. The third judge, Arngrímur Ísberg, was in minority: in his opinion all four were guilty and should have been sentenced to prison. Theoretically, if a lay judge had sided with Ísberg the outcome would have been different.
From the course taken by the Reykjavík District Court in the al Thani case, where the four indicted were sentenced to 3-5 1/2 years, it is difficult to understand the reasoning of the two judges who chose to acquit in the Aurum case. The al Thani case has been appealed and a Supreme Court decision is expected in autumn or early winter. If the Supreme Court comes to a different conclusion it would not be the first time that an acquittal in a banking-related case is turned around in the Supreme Court.
The other case ruled on last week – called the Ímon case after one of the companies involved – is part of a market manipulation case brought against Landsbanki managers. Here the loan saga is similar to the al Thani case: Landsbanki lent funds to limited liability companies with little or no collaterals, here in order to fund the buying of shares in Landsbanki only days before the bank collapsed. These deals were nothing less than the largest share purchases in Landsbanki that year – these companies were each buying around 2% of Landsbanki shares. Sigurjón Árnason and Sigríður Elín Sigfússdóttir were acquitted but a lower level employee, Steinþór Gunnarsson was sentenced to nine months in prison, of which six are suspended.
So far, all the OSP cases have been appealed and that will most likely be the route with these two recent decisions.
Apart from legalities it is clear that if banking as practiced in the above mentioned cases were applied as a general rule the bank in question would be out of business fairly soon. And who wants to be a shareholder in a bank where funds are leant out in such a way that if something goes wrong the bank can’t recover the funds?
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Jón Ásgeir Jóhannesson, Glitnir ex-CEO Lárus Welding and two other Glitnir employees have all been acquitted this morning in the Reykjavík District Court in the Aurum Case. The Prosecutor will no doubt appeal, sending the case to the Supreme Court.
It remains to be seen what the outcome will be but in the Exeter case, another financial fraud bank-related case, the Reykjavík District Court acquitted but the Supreme Court sentenced to 4 1/2 year prison term.
The verdict is not yet out on the Court website. Will read it later on.Follow me on Twitter for running updates.
The Progressive Party staged a remarkable turn-around in Reykjavík, apparently because the top candidate spoke out against a planned mosque. Anti-immigrant discourse has so far not been part of the Icelandic political debate. The question is if this is now changing or if this topic will die out as quickly as flared up
After rush towards new parties in elections 2009 and 2010 the four old parties – or the “Four-Party” as Icelanders call them – got a solid outcome in the elections Saturday May 31. The Independence Party is still far from its glory of earlier decades, which ended in 2009, but the party leadership can sigh in relief that the party did make gains. The Progressive Party did not do as well but achieved nothing less than a miracle in Reykjavík: after opinion polls showing 0 seat, as has been the case since 2006 it won two seats, apparently because it questioned a planned mosque in Reykjavík.
The local elections only has an indirect effect on the government but the two coalition parties – the Progressives and the Independent Party can both interpret the outcome positively in spite of dismal polls lately: the Progressives will no doubt feel they are good at gauging the popular mood; the Independence Party might feel reassured that its bleakest hour are now firmly behind.
The social democrats gained votes and can feel mildly reassured of its outcome. It did not do quite as well in Reykjavík as opinion polls had indicated but it is the largest Reykjavík party. Its top candidate Dagur B. Eggertsson, who has de facto steered the Reykjavík Council under mayor Jón Gnarr, is likely to form a majority with Bright Future. That party ran for parliament last year, picking up some of its candidates from Jón Gnarr’s now defunct Best Party, though only a fraction of the Best Party popularity in Reykjavík. Left Green lost around the country but won a seat in Reykjavík and might very well be part of an Eggertsson led council.
The unexpected election topic in Reykjavík: a mosque
The issue of a plot of Reykjavík land for a mosque only flared up in the last few days, apparently almost by accident. The Progressives’ leading lady in Reykjavík Sveinbjörg B. Sveinbjörnsdóttir – who took the first seat a few weeks ago when the number one resigned in face of dismal opining polls – started airing her doubt about the planned mosque. She denies she took this up on her own accord but only responded to questions when meeting with voters.
Sveinbjörnsdóttir got a heavy beating from some in her own party for airing what some felt were intolerant views: the number five on the list disengaged from the party, Gunnar Bragi Sveinsson minister of foreign affairs spoke strongly against her views. Interestingly, prime minister Sigmundur Davíð Gunnlaugsson kept quiet about the issue and only spoken of his unease over the strong reaction Sveinbjörnsdóttir elicited from those who did not agree with her.
According to Icelandic law, faith communities can get a land free to build a house of worship. Needless to say, this law stems from the time when the Icelandic Lutheran community – almost entirely under the state church – was the only faith organisation building houses of worship. The Reykjavík council had given a plot of land to a Muslim community. The rumbling among the voters has been why this community should get land for free, if it should be in some other place, if the land was unreasonably big, that mosques were known to harbour terrorism and extremism and so forth.
The fact that Sveinbjörnsdóttir echoed the concern of many voters seems to have created a surge for the Progressives only over the last few days. Also it seems to have made a difference that the Progressives are in favour of keeping the Reykjavík airport whereas other parties want it moved in order to free up building land. Consequently, the party now has two members on the Reykjavík council, after having had none since 2006 – the most surprising outcome of the local elections.
Racism and intolerant views has had no following in Icelandic politics – so far
So far, racism and intolerant views towards foreigners or new foreign faith communities has had little public following in Iceland. And not entirely for lack of trying. One new party, which ran in the parliamentary elections last year preached some far right views, both on markets and foreigners but to no avail: this party got nowhere.
Earlier, the Progressives had dallied with anti-foreign view, but the same: there was no response from voters and by election time last year the party had abandoned these views. Anti-foreigners far right views simply did not seem to attract any interest. Until the issue of the mosque rose to the surface.
Immigrants in Iceland
Number of foreigners in Iceland has jumped up over the last decade. Immigrants came first to work in the fishing industry, later in the service industry. Apart from the fishing industry, hospitals and restaurants run on an immigrant workforce.
At the beginning of 2013 9.1% of the inhabitants in Iceland were immigrants. By far the largest foreign community in Iceland is the Polish community, ca. 9.400, in a country of 326.000 inhabitants, meaning the 3% of the inhabitants are Polish/of Polish origin. The highest ratio of immigrants vs Icelanders is in Western Iceland but two out of every three immigrants live in Reykjavík. Unemployment among the Polish community is 15% compared to 4% for born and bred Icelanders. The Poles have much revived the Catholic community in Iceland.
There are two Muslim communities in Iceland with a total of 645 members. An application for a plot of land to build a mosque was put forward already in 2000 and has been sloshing around in the system ever since. In the meantime, the Russian Orthodox community and the pagan community (Ásatrú, based on what is thought to have been the faith of the Vikings) got plots of land in 2007 and a Thai Temple was granted land in 2009.
The application for a mosque has surfaced in the Icelandic debate now and then but never with any particular fervour – until now.
If this indicates a surge of right wing anti-immigrant politics in Iceland remains to be seen. Judged from how these policies have fared so far it seems unlikely – but it is also possible, as often happens with these issues, that debate now might have granted these views a certain “legitimacy,” which others may feel they can now exploit: being anti-Muslim might pave the way for a further “them and us” discourse in Icelandic politics though there is nothing to indicate it except this flare around the mosque not yet built.Follow me on Twitter for running updates.
The oral hearings in the Aurum case are now over and a verdict can be expected in the coming weeks. Those charged are Jón Ásgeir Jóhannesson, for exerting undue influence on Glitnir CEO Lárus Welding, also charged, in addition to two Glitnir employees, Magnús Arnar Arngrímsson and Bjarni Jóhannesson who managed Glitnir’s business relations with Jóhannesson and his companies. The three Glitnir employees are charged for breach of fiduciary duty.
An intriguing sub-story, surfacing during the hearings, is that during the hearings Jóhannesson told the court that he had been able to obtain information on Fons, the company of his long-time business partner Pálmi Haraldsson. Jóhannesson told the court how he had requested and obtained this information. The interesting thing is that Jóhannesson had no formal relation with Fons and yet the bank handed over to him financial information on Fons. And it was quite interesting the Jóhannesson told this to the court as if this was the most natural thing in the world.Follow me on Twitter for running updates.