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Iceland freezes out global investors

Monday, February 17 11:36:30

Iceland's government feels it can shun international investors while enjoying economic growth - witness its dismissive response to a $5 billion lawsuit over Icesave debts and a tough stance on paying bond creditors.

The centre-right administration, elected last year, has turned its back on talks to join the European Union, largely opting to go it alone in rebuilding an economy shattered by a banking collapse.

That had forced the nation of 320,000 to take an international bailout and slash public spending, but now the economy is growing at the fastest pace since before the crisis and better than many EU countries - expanding by 3 percent in 2013.

Meanwhile, the tough stance over creditors remains popular with voters despite capital controls that hamper foreign investment.

"There are no good reasons for Iceland becoming financially isolated, and we have seen things developing in the right direction," Icelandic Prime Minister Sigmundur Gunnlaugsson told Reuters.

Foreign visitors have flocked to the island. Tourist revenues for the year to the end of September were 267 billion Icelandic crowns ($2.3 billion) up from 73 billion in the whole of 2008. Earnings from fishing and aluminium are up 60 percent and 25 percent respectively in the 2008-2012 period.

"Iceland has recovered faster than most others," Eirikur Bergmann, professor of politics at Iceland's Bifrost University, said. "Of course, capital controls skew the economy, so in the long run it needs to be sorted, but there doesn't seem to be any immediate need to rush into doing that."

Indeed, economists say the protective shell around the economy also makes things difficult for local businesses while the island's financial markets are being distorted.

But for now, there is little public appetite for the compromises needed for reintegration into the financial mainstream.

Earlier this week Iceland's Depositors' and Investors' Guarantee Fund said Britain and the Netherlands had filed a $4.87 billion claim with a Reykjavik court over money they paid out to cover domestic savers losses in Icesave accounts when Landsbanki collapsed in late 2008.

Iceland's prime minister dismissed the suit, saying that the two countries would not get much for their efforts as there was no state guarantee for the debt.

His lack of concern reflects a sense of wounded pride following the banking collapse and the Icesave spat when the British used anti-terrorist laws to seize Icelandic assets.

Support for joining the EU has slumped and there has even been talk of adopting Canada's currency, not the euro.

"I actually thought the Icesave dispute had ended and this suddenly popped up," 41 year-old Gudrun Gunnarsdottir said. "It's another case of the big countries trying to use their strength against a smaller nation." (Reuters)