Iceland's New Government Has Cunning Plan Of Tapping Banks To Boost Growth, Improve Infrastructure

Tyler Durden's picture

We like Iceland, we’ve never been there, but that doesn’t matter. Besides the outstanding natural beauty, Iceland, unlike the US, UK and practically everywhere else, holds bankers accountable. Last time we checked, 29 had been jailed. As we discussed, it also holds its leaders accountable (partially – see below) when they are complicit in exonerating convicted child rapists. Such an event brought down Iceland’s government in September.

Last week, it emerged that Prime Minister Bjarni Benediktsson knew of attempts by his father, Benedikt Sveinsson, to have the Ministry of Justice grant “restored honor” to a convicted child rapist. Benediktsson kept this secret as the rapist, a friend of his father’s was essentially exonerated.

Restored honor is the controversial process by which convicted criminals can have their crimes expunged and return to society with all rights and privileges restored. It requires that the convicted person serve between two to five years of their sentence on their best behavior and that they have multiple letters of recommendation. Sveinsson provided one such letter.

Iceland held new elections on 28 October 2017 and a new coalition government came in to power this week. Iceland’s economy has been booming, in part due to the influx of tourists visiting its thriving capital city, Reykjavik, along with the Geysir geyser and the Gullfoss waterfalls. On any given day, tourists are likely to account for about 10% of the island’s population. However, as the FT explains, Iceland is paying a price for its success.

These challenges include everything from the poor quality roads and overburdened infrastructure to a lack of accommodation and simmering popular discontent over how tourism is being handled. At Geysir and Gullfoss in central Iceland, dozens of buses and cars park at both attractions for free before disgorging tourists who pay no entrance fee. The roads across Iceland are under intense strain from hire cars and a tourist died just after Christmas in a head-on collision on a single-track bridge.

“What are we sacrificing when we don’t put a levy on tourists? The roads here are dangerous,” says Asta Helgadottir, an MP for the anti-establishment Pirate party…Accommodation is also a problem. Cranes everywhere in Reykjavik attest to the surge in hotel construction but the increase in rooms still lags behind the growth in tourism.

However, all is not lost. The new government has a plan…which involves Iceland’s banks and tapping their excess capital. According to Bloomberg.

Iceland’s new left-right coalition government is gearing up for a spending drive to fix the nation’s dilapidated infrastructure after years of austerity and it could tap its banks for the some of needed cash.

Iceland got a new government on Thursday, in a coalition between the Left Greens, the Progressive Party and the conservative Independence Party. The parties have pledged to spend more on roads and other infrastructure to catch up on an estimated 400 billion kronur ($3.9 billion) in missing investments.

Even in Iceland, it seems, discredited politicians can bounce back into public life almost immediately, which is precisely what’s happened in the case of Bjarni Benediktsson, usually known as “Bjarni Ben”.

Bloomberg spoke to the man himself, “According to Finance Minister Bjarni Benediktsson the government has an ace in the hole that can help finance the spending: the excess equity in its three largest banks, Arion Bank hf, Landsbankinn hf and Islandsbanki hf. The banks have leverage ratios in the 16 percent to 18 percent range at the end of June, far above the 3 percent minimum, according to Iceland’s central bank.

“We have hundreds of billions of kronur, way more than any other European nation, tied up in financial institutions,” said Benediktsson, a former prime minister who will now take over at the Finance Ministry, in an interview on Thursday “And we in the three parties are ready to shake loose this capital to use it toward an infrastructure build up.”

With a plan like that, the government must have considerable leverage over Iceland’s major banks...and it does.

The government owns most of Landsbankinn and all of Islandsbanki and has a stake in Arion. The banking assets were acquired after the 2008 collapse when the government stepped in to save the financial industry. The crisis is now largely in the rear-view mirror and the new government is being handed a booming economy.

The government will now put together a white paper on the financial system and have a broad discussion in parliament.

We hadn’t fully appreciated how rapidly Iceland’s economy has been growing - last year it grew faster than China (6.7%) and even faster than India (7.1%). However, the growth rate is declining rapidly, so the coalition government’s plan might be timely, if it can be executed.

There are signs that the economy may be cooling after growing at a whopping 7.4 percent last year. Economist surveyed by Bloomberg are forecasting gross domestic product growth at 4.2 percent this year, while the central bank recently lowered its forecast for 2018 to 3.4 percent from 5.5 percent.

Despite the differing left-right ideologies in the new coalition government, Bjarni Ben and the new prime minister are cautiously confident, especially the former.

Internally, the government may find it hard to reconcile the policies of its two biggest party’s, the Left Greens and the Independence Party. But both party leaders on Thursday insisted they would make it work.

“The outer circumstances are working in our favor in forming this government,” Benediktsson. “We are the European nation that is growing at one of the fastest rates — we have no unemployment in Iceland to speak of, we have a budget surplus since 2014 and forecasts predict continuing growth, a great increase in tourism next year.”

Taking over as prime minister will be Left Green leader Katrin Jakobsdottir, the first time the party holds the top spot after emerging as the second biggest group in October’s election. While she faced some internal party turmoil for joining with the Conservatives, she is now “optimistic but realistic” that she can make it work.

Having cratered the economy during the crisis, it would be poetic justice if the major Icelandic banks were its saviour as we head towards the next one.

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tmosley's picture

I don't think tapping them is going to be enough. Gonna have to go for the double tap.

It's rule number two in ZombieBankerLand.

https://www.youtube.com/watch?v=JmA2WYyw-_A

pathosattrition's picture

Wait, so you mean not catering to bankster threats is good for duh caconomy?

falconflight's picture

Yawn...ever heard of the Community Reinvestment Act?

Yen Cross's picture

  I'm all ears. When is the last time you heard of some Viking being hung in Iceland?

Francis Marx's picture

I guess this is another story where a government robs someone..

Anyways...the bank will just pass the cost on to you and me.

totenkopf88's picture

You're right- the banks should just sit on all of that money (money is yours and my STORED LABOR) and speculate on currencies and commodities with it like the Fed lets Goldman, Citi,  JB Morgue,  etc do instead of getting it out into the REAL ECONOMY where the people can get access to it. In fact, fuck it- let the benevolent banks have all of the money and we can fight for a meal like in The Hunger Games. Because Jamie Diamond and Lloyd Blankfein really give 2 shits about you and me.

CompassionateConservative's picture

What a terrible comment.  Banking is hard work and until you've walked a mile in the head of Goldman Sachs' shoes (because he's never walked a mile in them) you need to just shut up.  It's not easy work like working in a steel mill or a coal mine.  Workers in steel mills and coal mines have it easy compared to a Goldman or JPM exec.  You sound like a fucking ANTI-SEMITE!

totenkopf88's picture

Is it anti-semitic to point out that the reason Germany pulled out of the Depression so fast while the rest of the world languished in it is because Germany seized the banks and issued Labor Coupons instead of the fiat Jude Fetzen the rest of the world was using? And that nationalization of the Rothschild's banks in Germany was the main contributing factor to WW2 and that Muh Holocaust BS was just cover for the rest of it?

CompassionateConservative's picture

Sure, the banks are going to be a good help to getting Iceland back on it's feet but the KEY to success in Iceland is the mass importation of hundreds of millions of niggers and moslem terrorists.  The aging white population is going to need them to pay for their pensions after all!  Only a hardcore white supremacist nazi would resist being replaced in your ancestral homeland.  IT'S 2017/THE CURRENT YEAR FOR FUCK'S SAKE!!!