Sigrún Davíðsdóttir's Icelog

A recent ruling in a French court spells out that while a case against Landsbanki Luxembourg for wrongful selling of its products is ongoing in France, Landsbanki Luxembourg cannot pursue its recovery of these loans. Over 80 clients in France of Landsbanki Luxembourg brought a civil case in France against Landsbanki, represented by Yvette Hamilius, for wrongful presentation of its loans. In a ruling July 13, Judge Renaud van Ruymbeke ruled that the recovery could not continue as long as this case is ongoing.

As Icelog has pointed out earlier, so many of the Landsbanki Luxembourg clients with equity release loans and often some investments found that incomprehensibly their assets fell just below the value, which demanded they added assets so as to cover 110% of the value. This put many of them in arrears, meaning that the Landsbanki Luxembourg administrator started threatening to sell their houses and has indeed sent the bailiffs out.

This French ruling gives them some hope that the selling of the loans, events at Landsbanki before its demise and the consequent actions of the administrator will be clarified.

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Today, Tax Justice Network published its report on how the super-rich might have $21tn (yes, trillions) – and possibly up to $32tn – stashed away in tax havens.

After the Icelandic banks collapsed in October 2008 the first thing I happened to investigate were their Luxembourg operations. I only learnt much later that their dodgy loans mostly went through Luxembourg but it was their offshore operations, out of Luxembourg, that I did start with. All of the banks offered offshore services from Luxembourg but Kaupthing, in particular, did this very systematically, by offering not only their large clients but also many smaller clients private banking service there.

I’ve spoken to some of these smaller clients – and what is clear to me is that if people both paid the cost – and – duly paid tax on the profits arising from these investments this was a loss-making entreprise. The offshore service is a costly one so the question was whom to pay – the bank or the Inland Revenue. And this isn’t money trickling down in the economy – this is money flowing out of it.

As the Tax Justice report brings out, the money tunneled out of the economy into tax havens are no trivial sums, ranging from $21tn to possibly $32tn, depending on the methods used to establish the numbers.

If the politicians don’t start taking this into account – and political parties cut short their dependence on financing from those who thrive on the offshore wealth – voters are bound to revolt. No society can bear that the wealthiest choose to pay their due to banks, lawyers and accountants and not to society. The inequality arising from this is scarily destabilising.

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This week saw the publication of a report by the US Senate into money laundering, with the HSBC bank as a case study, U.S. Vulnerabilities to Money Laundering, Drugs and Terrorist Finance: HSBC Case History. I’ve been through the report and the stories recounted of individual cases read like drafts for thrillers. As in the FSA and US reports regarding Barclays’ LIBOR rigging the most fascinating read is in the extensive email excerpts – they give a real sense of the tone.

One of the HSBC stories relates to the bank’s US subsidiary, HBUS, and its transaction with a Japanese bank, Hokuriku Bank, known to have a poor ‘Know Your Customer’ information. In less than four years, from 2005-2008, HBUS cleared more than $290 million in bulk U.S. dollar travelers cheques from Hokuriku Bank. The cheques were submitted in large blocks of sequentially numbered cheques of $500 or $1000, signed and countersigned not by two separate signees as required but with the same illegible signature. When HBUS finally made some inquiries as to who might be on the other end, the bank was told the end customers were Russians, dealings in used cars. In  2008 the appropriate US authority, The Office of the Comptroller of the Currency, OCC, pressured HBUS to stop processing the travelers cheques but it wasn’t until this year, when the Senate inquired about this contact, that HBUS finally closed the account – four years after the OCC first tried to push HBUS on the matter.

The HSBC emails give a good sense of the tone, the mentality and the line of thinking within the bank. There is a wealth of interesting information, plenty to chose from, but here are three examples I found striking and very informative as to what went on in the bank, the way of thinking and the conflicting interests within the bank – the conflict between making money and following rules and regulations and the bank’s own compliance officers.

HSBC knew for years that its accounts in Cayman and the bank’s handling of Mexican accounts were a weak line in respect to money laundering. One HSBC banker in Mexico guessed at one point that the bank was laundering 60-70% (!) of the funds of Mexican drug gangs. The quote below, from January 2009 reveals the conflicts here between money laundering measures – and “cheap funding:” (emphasis mine):

“Last but not least, I will address the issue of funding. After all, Cayman and Mexican dollar accounts provide us with US$2.6 billion of cheap funding. We are likely to lose a big portion of this if we tell customers we no longer receive dollar notes. We have to provide an alternative to our customers for this: Miami accounts may be an alternative but we will have to talk to HBUS of how we get this ch[eap] funding back to Mexico to lend.”(p. 80)

Sometimes, even simple words can be mistaken for “colourful” language. The following refers to the fact that the bank helped Iranian entities get money in and out of the US in spite of Iran being on a list of countries that US citizens weren’t allowed to do business with:

“Later that day, another HBEU official John Ranaldi sent an email to Mr. Geoghegan stating that he was aware of the Iranian situation and would get an update. He wrote: “[B]asically, our interpretation was that we were being asked to ‘fudge’ the nature of the payments to avoid the U.S. embargo and seizure.”834 When asked about this email, Mr. Geoghegan told the Subcommittee that he could not explain what Mr. Ranaldi meant by using the word “fudge,” except that it related to Iran.835 He said that, at the time, he was unaware that HBEU was altering transaction documentation or using cover payments. Having since learned what was going on, he told the Subcommittee that he assumed that’s what Mr. Ranaldi was talking about. When asked whether it raised alarm bells at the time, he remarked that he got many emails and Mr. Ranaldi used colorful language. He said that he also knew Mr. Ranaldi would follow-up with him in a few days.” (p. 146-7)

HSBC ignored the US extensive efforts after 9/11 2001 to prevent funding of terrorist activities. Here is the report’s analysis of this issue (comment in brackets is mine). Christopher Lok, mentioned below, was questioned least week by Levin and he started by apologising, also for his harsh way of speaking to his colleagues; his emails aren’t all very pleasant:

“In each case, HBUS and HSBC personnel were aware of the information (and the problems connected to them), but approved or maintained the accounts anyway. When an AML Compliance officer like Beth Fisher declined to approve an account, HSBC personnel found someone else to take her place. In several cases, Christopher Lok, head of U.S. Banknotes, took on the role of relationship manager fighting for account approval. His test for taking on that role depended in part upon how much revenue an account would produce. Al Rajhi Bank’s threat to terminate business with HSBC affiliates also appears to have galvanized HBUS’ renewal of the account.

Another striking feature of these accounts is the fact that a decision by one HSBC affiliate to terminate a relationship with a bank due to terrorist financing concerns did not always lead other HSBC affiliates to follow suit. In the case of Al Rajhi Bank, for example, HBUS terminated the relationship, but HSBC affiliates in the Middle East continued to do business with the bank. One HBUS executive later argued that, since HSBC was already exposed to the reputational risk posed by Al Rajhi Bank through the accounts at other HSBC affiliates, its reputational risk would not increase if one more account were opened. In May 2012, HSBC changed its policy to apply decisions to terminate a client relationship to apply globally to all its affiliates. (p. 240)

The report is also tough on the regulators and their kid glove treatment of a bank that for years and repeatedly desists all attempts by the regulator to push it to follow rules and regulations on money laundering. This reading is yet another reminder that the softly-sweetly approach to regulation has failed. Banks apparently only understand an iron fist and no silk glove.

Senators Carl Levin – an absolute hero of mine for his wit and untiring questioning of the activities of the big banks – and Tom Coburn conducted a hearing last week in relation to the report. The hearing is absolutely fascinating to watch. One of Levin’s star moments is when new managers with the HSBC, hired to remediate the bank’s reputation after this sorry saga, say all the right things as to what needs to be done. Levin says we now need action and not just words – and then reads an almost identical declaration from HSBC… from 1993.

The HSBC case history is bound to have political ramification in the UK. Lord Green was the CEO of HSBC from 2003-2006, when he became chairman of the board until he took office as a minister of trade in 2010. Lord Green can’t play the game of not knowing. He is copied in on emails in the report, ia on Burma – on the list of countries US companies aren’t allowed to do business with – and was the CEO as Mexico drug funds flowed through the bank.

And yet again – following the LIBOR investigations – it seems that US authorities are much more vigilant and virulent in investigating financial malfeasance than corresponding authorities in the UK.

Over the years there have been persistent rumours of money laundering in the Icelandic banks. I’ve heard this from so many independent sides – and yet I’ve never seen any proof of it. But seeing what HSBC was up to – and how easily it could carry it out, in addition to an earlier case regarding ia Wachovia Bank – I do wonder if the reason we don’t know of money laundering in other banks, ia the Icelandic ones, is just because they haven’t been investigated on this point.

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I’m sorry but there seems to be something wrong with the “submit comment” activity on the blog. When a comment is submitted it just disappears and can’t be seen. It’s not because of the moderation. It will be looked into. Again, really sorry – I don’t know the reason but will try to solve the mystery of the disappearing comments.

Edit – Comments are now working again!

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Imagine you were a central banker – or a bank manager – and then you read a series of articles in a leading newspaper about a remarkably audacious scheme of rigging the market, such as rigging the LIBOR rates. What do you do? Do you shrug your head – like ex-CEO of Barclays and just tell yourself this is what other banks do, not your own, so there is no need to ask around? Or, do you do like the Governor of the Bank of England, Mervyn King, and fasten your eyes on this little sentence “no indication of wrongdoing” – this tautological magical sentence all media attach to critical coverage to avoid being sued – and see no reason to ask these troubling questions? Also Lord Turner, chairman of the FSA, read the Wall Street Journal’s articles on LIBOR rigging in spring of 2008 and saw no reason to investigate the matter.

I’m not sure which of these two reactions is worse – thinking it’s the others or just take the statement of no wrong doing for granted – but I rather feel the Governor beats the CEO here. The Governor of the Bank of England felt he could rest assured there was no need to probe the question of rate rigging just because the WSJ assured its readers there was no evidence of any wrongdoing. Does the Governor blindly trust the media to tell him what is right and what is wrong?

Once the topic had come up, it kept popping up in various media and yet, neither the Governor nor the CEO nor the army of those who should have known – or at least asked – did know until June 27 when the US and UK regulators announced they were fining Barclays 290m for the rate rigging. Apparently more fines to follow, for various other banks.

If there isn’t some other explanation as to why this matter wasn’t investigated earlier, it certainly shows a staggering, if not downright scary lack of curiosity that once this subject was the topic of media coverage the leading lights in the financial world never saw a reason for asking around. Erasmus of Rotterdam wrote in praise of folly – I think curiosity is an under-rated virtue.

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Almost four years after the demise of Kaupthing Singer & Friedlander, the Financial Services Authority and Her Majesty’s Treasury have finally chosen to throw light on the final days of KSF. Their reports are poor, do not mention key issues related to the collapse of the bank and do not inspire confidence in these two institutions. True, KSF was only a small player in the UK market but it had £2.5bn in deposits from UK deposit-holders when the bank collapsed.

The Treasury report, Events leading up to the failure of Kaupthing Singer & Friedlander Limited, gives an overview of events. This report cites the report of the Special Investigative Committee, SIC, as a source but is, as far as I can see, a fairly sloppy and imprecise translation from the SIC report, two years after its publication. The Treasury report mentions ia a sum of £98m but it should be, as far as I can see from the SIC report, ISK98bn. Also, the SIC report quotes extensively from witness statements given by UK officials and others in relation to a judicial review Kaupthing brought to question the actions taken against Kaupthing in the UK. Weirdly, the Treasury report doesn’t seem to cite these witness statements or any other documents related to the judicial review, and gives a far less detailed account than the SIC report. (See the SIC report on the fall of KSF vol. 7, p. 161-175.)

The FSA focus is inexplicably narrow – and only refers to the liquidity management of KSF from 29 September 2008 until the bank was placed in administration on 8 October. There is a short overview and a so-called Final Notice. That the liquidity management is investigated only during these few days is rather superficial when the SIC report gives good reasons to wonder how the bank met its liquidity requirement over most of 2008.

The FSA summarises its findings:

The FSA has investigated the liquidity management of the UK-based, FSA-regulated bank KSFL in the period prior to KSFL being put into administration on 8 October 2008. KSFL activated its liquidity contingency process on 29 September 2008 and notified the FSA that it had done so on 30 September 2008. Nevertheless, we have found that between 29 September 2008 and 2 October 2008 KSFL did not give proper consideration to or properly monitor a special financing arrangement with its parent company in Iceland under which it could draw up to £1bn at short notice if it needed to.

The question is how this agreement with Kaupthing was presented in the KSF books.

The Final Notice states: “The existence of the Liquidity Transformation Arrangement had previously been disclosed to the FSA and had been successfully used by KSFL in the past to call on funds from KBHf.”

But what exactly did FSA see in terms of this agreement KSF had with Kaupthing hf, the Icelandic parent company?

There is good reason to ask because the SIC did look into this matter. According to the report, the KSF did a liquidity swap agreement with Kaupthing hf in March 2008 – or what is called a “Liquidity Transformation Arrangement” in the FSA final notice. When the SIC asked to see the agreement it was told no written agreement could be found. It concludes that most likely, there was no written agreement. The only thing the SIC got were some emails with a rough description of the agreement – and yet, it was an agreement involving £1bn.*

According to the Final Notice, KSF was in breach of FSA rules.

The Final Notice outlines how KSFL did not give proper consideration to, or properly monitor, a special financing arrangement with its parent company in Iceland, under which it could draw up to £1bn at short notice. KSFL assumed it could rely on receiving this £1bn ‘Liquidity Transformation Arrangement’, if needed, without testing that assumption. In addition, when it started to have concerns about this liquidity arrangement, it failed to discuss these concerns with the FSA in a timely manner.

This seems slightly confusing. According to the Final Notice, KSF’s CEO Armann Thorvaldsson notified the FSA on 29 September 2008 that the bank had moved to “code red” in accordance with its liquidity contingency. According to the Treasury report a team from the FSA was actually at the bank during these days. Yet, the FSA deems that KSF did not fully inform the FSA until in the evening of 2 October that it couldn’t make use of the LT Agreement with Kaupthing hf – and that is the failure, according to the FSA.

Again, this raises the question if the FSA had actually seen and evaluated the validity of the LT Agreement. Also, why didn’t the FSA monitor the possible use of the Agreement since the life of the bank depended on it? And since there was an FSA team at the bank, why didn’t they look at the loan book and the bank’s relationship with Kaupthing Luxembourg, where some of the more interesting loans to UK clients were issued? And surely, the relationship between KSF and Kaupthing hf would have been of interest, not least since KSF was so dependent on the mother bank, through the LTA.

The SIC report concludes (p. 173-175) that in the relationship between KSF and Kaupthing hf normal arm’s length principles were not followed: KSF did not make margin calls on Kaupthing hf although there were all the reasons to do so – nor did KSF stop its repo with Kaupthing when it could no longer fund the repos in the UK market. On the contrary, it sent more money to Iceland, thereby weakening its own position.

The Treasury report has only this to say about margin calls:

The Treasury was informed by the FSA that KSF was, prior to 3 October 2008, paying margin calls, estimated at £500-600mn, on behalf of Kaupthing Bank hf, thus providing an effective transfer of funds to its parent company. The FSA agreed a voluntary variation of permission (VvoP) with KSF on 3 October 2008 which prevented this continuing.

The FSA mentions margin calls only as signals of the difficulties Kaupthing hf was experiencing:

On 15 September 2008 Lehman Brothers Holdings Inc filed for bankruptcy protection, which acutely aggravated the global financial crisis. From this date, KSFL received an increasing number of signals which suggested that KBHf was
experiencing significant liquidity difficulties. These included KBHf wishing to accelerate certain transactions and negotiating the timing and method of payment of  margin calls. These signals should have indicated that KBHf needed to improve its cash liquidity.

Consequently, neither the FSA nor the Treasury identify the problematic relationship between the subsidiary and the mother bank in Iceland. These UK authorities seem to ignore the fact that in spite of the flow of money from KSF to Iceland KSF did not treat the mother company as independently as it should have. This was, according to the SIC report, a key factor in the collapse of KSF – and yet, it isn’t mentioned in the FSA’s Final Notice and the Treasury report.

The lack of efficacy on behalf of the FSA is easier to understand now, after two days of Parliamentary hearing where MPs couldn’t get their head around why it took the FSA three years from FSA officials first heard of US LIBOR investigations until they so much as started thinking about investigating the LIBOR rigging. More bark than bites, as one commentator said.

One of the few unsolved mysteries of what went on in Iceland these early days in October 2008 are loans from the Central Bank of Iceland to Kaupthing, in total ca €600m. The largest loan, €500m, was issued after-hours 6 October when it was clear that Kaupthing, just like Glitnir and Landsbanki, was beyond salvation. Smaller loans were issued on 2 October and then on 8 October. The only reason for issuing these loans would have been if they could have saved Kaupthing – but that was far from being the case as should have been clear to everyone late in the afternoon of 6 October. Funds would have been most needed at KSF, in order to prevent cross default being triggered, but it’s clear both from the SIC report and the two UK reports that the money never reached UK shores. The mystery is where this money ended up – and why, according to Icelandic parliamentary sources, there doesn’t seem to be a proper documentation for the €500m loan at the CBI.

A part of the KSF saga, told in the Treasury report, relates to KSF in the Isle of Man, which was a direct subsidiary of Kaupthing Iceland and not of KSF UK. As early as Spring 2008 KSFIOM was required by the FSC (IOM Financial regulator) to zero its exposure to the Kaupthing Group, and yet the directors continued to forward deposits to KSF UK, where they remained exposed to the Group. KSFIOM’s accounts (September 2008) show £557 million with KSF UK. Had the regulator enforced its requirement and the directors adhered to it then KSFIOM would in all probability still be trading today. Again, broken promises on behalf of a Kaupthing bank and no stringency on behalf of its regulator.

The close connection between KSFIOM and the island’s regulator is of interest. One of the KSFIOM’s non-exec directors was also vice-chairman of the FSC. What seems normal in the Isle of Man would not be acceptable in London.*

All three reports – the two UK reports and the SIC report – show clearly how during the last days the Kaupthing management day after day made promises, which were  never fulfilled. That is in accordance with the banks’ behaviour towards regulators in Iceland and their unwillingness to supply full information until the very end. As an explanation of what went wrong in KSF, the Final Notice and the Treasury report definitely don’t tell the whole story of why KSF collapsed, which transferred the burden of KSF-related deposit guarantees to the UK tax payers.

*In 2010, the KSFIOM Depositor Action Group sent a response to the Tynvald’s (the Parliament in IOM) Select Committee on KSFIOM, with valuable insight into the Isle of Man operation. Another valuable source of material re the KSFIOM is the website of the Depositor Action Group. 

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Readers of Icelog already know some of the answer to this question. Luxembourg is a gateway to the offshore world. The offshore world is a hide-away heaven for money that needs to be visible only to the owners and not to others. It’s a popular place for big corporations and wealthy individuals in search of good tax schemes and by shadowy elements who need to move money, quickly and efficiently, out of sight. It’s no coincidence that the Icelandic banks, allegedly, ran all their most dubious loan deals through Luxembourg. It’s also worth keeping in mind that all European – and many international – banks, which want to be something more than a little local bank, operate in Luxembourg.

An interesting view on Luxembourg – and Icelandic – operations can be gauged through the operations of Landsbanki Luxembourg. The bank’s equity release scheme leaves some questions to be answered, as pointed out earlier on Icelog. Also, how the bank bought Landsbanki and Kaupthing bonds as investment for clients in mid and late 2008, in some cases directly against written agreement with clients. (At this time, there were literally no buyers for bonds of these two banks. Landsbanki did at this time set up a company in the Netherlands, Avens BV, stuffed it with all sorts of Icelandic bonds and used it to repo with the European Central Bank, an interesting story in itself, with the aid of Crédit Suisse.)

In addition to the bank’s own operations, before the collapse, the actions of the administrator, Yvette Hamilius, have been brought into question.

The administrators of the Icelandic banks, in Iceland, have all scrutinised the banks’ operations prior to the collapse. This is always done in a bankrupt company. A bankruptcy is the outcome of a long process and an administrator always looks at all dealings some months prior to the bankruptcy to make sure that managers, owners or others haven’t made anything that could be seen as unfavourable to creditors.

All the administrators in Iceland have brought cases against managers – and in some cases against the large shareholders – for causing the creditors of the bank in question damages. Apart from that, there are the ongoing investigations of the Office of the Special Prosecutor in Iceland.

If the Landsbanki Luxembourg administrator has questioned any of the dealings in Landsbanki prior to its fall or brought any cases against the managers such moves have not been communicated. – Instead, the Luxembourg Prosecutor has issued a statement where he declares his support for the administrator’s actions. Just his statement makes one wonder what sort of a country Luxembourg is. Why isn’t the Luxembourg Prosecutor doing what is Icelandic colleague is doing, investigating banks, which have shown ample reasons for suspicion? Is that because Luxembourg bases its wealth on the flow-through of international funds and doesn’t want to do anything to disturb the smooth flow?

I have had the opportunity to look at, in detail, documents related to certain clients of Landsbanki Luxembourg. A perfectly normal part of the equity release contract is that if the value of the assets underlying the contract – in Landbanki case normally a property in France or Spain – falls below a certain limit, here 90%, the bank can call for cash or further valuables to cover itself.

A closer look at the realities in portfolios related to some clients Icelog has seen, indicates some rather remarkable movements. According to overviews, not only from one but several clients, the bank re-evaluated the portfolios just before its collapse – and miraculously the valuation turns out to be 89.9%. A tiny fall, allowing the bank to call in further payment.

At least in one case, an Icelog source who is familiar with the property in question is pretty sure the house is under-valued. One French real-estate agent who operates in the South of France, where some of these properties are, has commented on Icelog that she is unaware of any changes at the time the bank was claiming there was a falling value. – A banker, familiar with type of deals, says that the bank might have envisaged an imminent decline in its re-evaluation but there should have been some documentation to prove it. Otherwise, a bank can forecast whatever it wishes.

There are clients who are now just about to lose their houses to bailiffs because of this tiny fall. The administrator has offered them a deal, which means that they either pay – in cases that Icelog has seen they are supposed to pay much more than they took out of the scheme because they are deemed to be in default. The remarkable thing is that the administrator doesn’t seem to be paying any notice to these weird movements in valuation: if the valuation hadn’t fallen down below the 90% many of these borrowers wouldn’t have the bailiff at the door.

In the UK, equity release scheme don’t create havoc to lenders and make them lose their homes anymore – as was common some 20-30 years ago – because banks in the UK are bound by strict rules in this field. This doesn’t seem to be the case in France and Spain.

Now back to the original question: what sort of a country is Luxembourg? It seems to be ia a country where the State Prosecutor comes to the aid of an administrator who hasn’t provided lenders with numbers that make sense when their houses, the roof over the head, is being taken away from them. It’s not a country where banks are questioned. It’s also a country where bank clients are completely unprotected when a bank loses clients’ money by investing directly against written agreements. Why the Luxembourg regulator, the CSSF, hasn’t investigated the serious allegations of mismanagement of clients’ funds and breach of MiFID rules in Landsbanki indicates that the reputation of Luxembourg as a good country for banks means more than Luxembourg being a good country for bank clients.

These are not just theoretical issues. These issues mean that in France and Spain some real people of flesh and blood, mostly elderly people, are losing their houses after a harrowing fight against forces in Luxembourg that seem to protect banks and bankers, not ordinary people.

*Earlier logs on Landsbanki Luxembourg are here and here, where I go more in detail through some of the topics related to Landsbanki Luxembourg and the equity release scheme.

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Icelog has earlier drawn attention to Bankia, the Spanish bank at the heart of the banking crisis in Spain, as an example of the interplay of the financial crisis and corruption. Interestingly, the Spain’s National Court has now opened a criminal investigation against former chairman of Bankia Rodrigo Rato, together with 32 top managers at Bankia. Most of them quit following Bankia’s recent nationalisation. None of them is currently working at Bankia.

The investigation centers on Bankia’s chairman Rodrigo Rato and the bank’s IPO last year. More than 300,000 investors, mostly small investors who also were Bankia clients, allowed the bank to raise €3.1bn. The Bankia managers are suspected of having lured investors with false information of the state of Bankia – the bank was apparently far from being an attractive investment object.

There are already other similar investigations ongoing regarding Bankia. Most likely, these investigations will be bundled into one. There is also an ongoing investigation into the merger of seven cajas in 2010, given the name of Bankia.

Bankia is now part of a financial system that needs a €100bn bailout. With Bankia’s management and whole existence being closely connected to Spain’s ruling Popular Party, the Bankia investigations test the soundness and effectiveness of the Spanish legal system and its ability to deal with financial crimes and political corruption.

Barclays was recently fined $450m both in the UK and the US for fixing interest rates – and is apparently also under a criminal investigation for interest rate-fixing. Other banks are expected to be named for similar illegalities in the coming weeks and months. It is about time that politicians and others in authority open their eyes to the corrupt side of the financial crisis.

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The recovery – or not – in Iceland has become a hugely popular topic for modern day learned querelles of economists. Is Iceland doing better than Ireland is a question that’s already been floating around for some time. And now, how does Iceland compare with the Baltic countries, which themselves have been branded as a miracle, especially Latvia. The latest ground for miracle contest – Iceland vs Ireland/Baltic states – is the Maurice Greenberg Center for Geo-economic Studies blog, on the Council on Foreign Relations website.

Back in July 2010 the question on the CFR website was Post-Crisis Iceland: Miracle or Illusion? The question was prompted after Paul Krugman had been writing on Iceland as the perfect solution for indebted EU countries. Krugman got his outcome by a clever choice of period to analyse. Now, CFR has revisited the question and conclude there is no miracle (with links to some articles on Iceland’s economic recovery).

Miracle or not, Iceland is doing pretty well. Here is the latest overview on Iceland from the IMF. The conclusion is:

Iceland is gradually emerging from its severe post-crisis recession. Domestic demand is driving growth and unemployment is declining, but inflation remains high. Imbalances are unwinding, but all sectors of the economy remain highly leveraged. The outlook is for a moderate recovery, but risks emanate from both external and domestic sources.

In a recent interview on Ruv, Gylfi Zoega professor of economics at the University of Iceland pointed out that the crisis in Iceland had come to an end. Icelanders may not quite notice it yet – and a crisis in euroland may derail it – but on the whole, economic key data in Iceland points firmly in this direction of “crisis over” – and growth has returned.

*Here is a recent Icelog from March on Ireland and Iceland.

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