Grigory Pasko: A Letter from Iceland

Big turmoil in little Iceland Grigory Pasko, journalist Если Вы хотите прочитать оригинал данной статьи на русском языке, нажмите сюда. Reykjavik, Iceland — Starting on 4 October, I was in Iceland at the invitation of the local branch of Amnesty International. Everything as usual: meetings, interviews… The first call came from the TV people. They reported that their interview with me would not go on the air at the appointed time, because an extraordinary address by the premier to the people was being expected. From my friends I already knew that former prime minister, currently chairman of the central bank of Iceland, David Oddsson declared in an interview to Bloomberg Television that negotiations with Russia about the granting to Iceland of a loan of 4 bln euros (5.4 bln USA dollars) are already begun. “We hope that they will be successful. Any help on the part of Russia will be very welcome”, – declared the head of the Icelandic CB. View of the center of the city of Reykjavik in the days of the crisis (photo by Grigory Pasko)

The Russian agency Interfax also reported on the understanding reached, in accordance with which Russia will grant Iceland a loan in a size of 4 bln euros for a term of 4 years at a rate of LIBOR+0.3-0.5% per year (inasmuch as LIBOR is now 7%, then in fact at 7.3—7.5%). But it cited not Russian sources, but…Icelandic ones. Later it became clear that not everyone in the leadership of Russia knew about this decision. Whose decision? A day after the start of the big turmoil in Iceland, associated both with the crisis and with the decision of Russia, prime –minister of Iceland Geir Haarde , answering the questions of journalists, said that supposedly a confirmation of such a loan had sounded out of the lips of the Russian prime-minister. In so doing, Haarde for some reason did not give the first and last names of his Russian colleague.Icelanders really were alarmed by the crisis – it was no joke for them. I saw this with my own eyes. Iceland has become one of the countries that has suffered the most strongly from the world financial crisis. On the verge of bankruptcy turned out to be the third-largest bank of the country, Glitnir, which the government was forced to nationalize, having paid 600 million euros for 75% of its shares. The threat of collapse hangs over the largest bank of the country, Kaupthing Bank.The small island state, situated in the northern part of the Atlantic, has become the first of the countries with a highly developed economy that has turned out to be on the verge of bankruptcy. In the meantime, as recently as last year, this splendid country occupied first place in the world on the UNO index of human development, which unites three indices: GDP, level of education, and material standard of living (by the way, by this index Russia occupies 67th place). By the level of GDP per capita, Iceland enters into the top five [countries] in the world ($42058). Moreover in recent times no small part of Icelandic incomes was formed with the help of the banking sphere. Icelandic banks invested huge sums beyond the border. (Recently, prime-minister of Great Britain Gordon Brown said that Britons will be compelled to file suit against one of the Icelandic banks, just recently actively attracting clients with advantageous conditions).On the eve of all these events the Icelandic króna fell by 35% against the euro. Then it fell even more. On the other hand, after Oddsson’s announcement about the Russian loan it regained its entire two-day loss.What immediately comes to mind when you try to analyze the decision of Russia about the allocation of the loan? That for Russia, whose international reserves exceed $556 bln, the sum of the loan is not great, but that for Iceland – this is voluminous aid. Iceland’s economy is very small. Its nominal GDP is around $20 bln – correspondingly, the loan comprises nearly a quarter of GDP. This is very big.And for Russia? According to the Dow-Jones index for the 3rd quarter of the year 2008, Russia turned out to be a country that lost the most of its stock market. 47 some-odd percent. At the same time as the States are the 9th country. Poland – 11 or 12th. Russia’s got the worst indices.The parliament of Iceland (photo by Grigory Pasko)The granting of a loan to another country in conditions of internal problems with a liquidity crunch looks, at the very least, inexpedient. About the reasons for such generosity we can only guess. In the opinion of certain experts, the granting of the loan in conditions of all-powerful losses of accumulated funds within the country – this is a way to save funds for the future.But there are other opinions as well. I will enumerate them all in order:1. it is entirely possible that this – is the creation of advantageous political conditions for the impending development of the Arctic ocean shelf;2. it can not be ruled out that Russia will demand of Iceland some kind of services for itself on the European political field, for example the recognition of South Ossetia and Abkhazia;3. Russia will ask to grant it a platform for the basing of refuelling aircraft for Russian Tu-160s –long-range aviation bombers that can carry nuclear warheads, for example, to the shores of the USA. All the more so given that a place for a military base after the departure of the NATO military in the area of Keflavik has been freed up. By the way, from 6 through 12 October Russian long-range aviation is conducting exercises;4. in the best case for Iceland, Russia will ask for a visa-free regime for citizens of the RF. (Although a touristic paradise for Russians this country will not likely become: cold, rainy… There’s enough of this boon in Russia already);5. by allocating the loan to Iceland Russia is strongly consolidating its image on the international arena that had been tarnished after the Georgian-Russian conflict. And for her this is important.And here is the opinion of yet another expert – president of the institute of national strategy Stanislav Belkovsky: “From the point of view of the national interests of Russia, this is completely not needed. But this is a good excuse for the removal of personal capitals at the peak of the crisis, which, unconditionally, is one of the main goals of the Russian elite. It hopes to use budgetary money for its own enrichment and removal to the West. Second, this is a way to improve relations with the West. But this does not answer to the national interests of Russia in any measure whatsoever”.How did ordinary Icelanders react to all these reports? I will note: the joy from the Russian loan was restrained. Because Icelanders, as it seemed to me, know well what the leadership of Russia is and what the price of friendship with this leadership is. They understand: they’ll have to pay somehow, because the only place there’s free cheese is in a mousetrap.