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The political situation in Iceland since the collapse of the financial system

The political situation in Iceland since the collapse of the financial system. The collapse and reaction. 80% of the financial system wiped out (market-cap wise). Emergency law enacted overnight enabled Financial Supervisor Authority (FME) to take control of three biggest banks.

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The political situation in Iceland since the collapse of the financial system

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  1. The political situation in Iceland since the collapse of the financial system

  2. The collapse and reaction • 80% of the financial system wiped out (market-cap wise). • Emergency law enacted overnight enabled Financial Supervisor Authority (FME) to take control of three biggest banks. • Treasury has injected 385bn ISK into the new, state owned banks. • Rest of financials dependent on Repo transactions with the Central banks of Iceland. • Central bank had big outstanding Repo transactions with the big banks, 345bn ISK had to be written off. Treasury took on that debt. • Central Bank was technically bankrupt after the collapse. • Currency crisis on top which has now led the government to enforce capital restrictions. • Central Bank now oversees and has to (formally) approve of all big currency exchanges. • Government sought aid from IMF, and loans from neighbour countries followed.

  3. Public reaction to the crisis • ISK has plummeted => Inflation is now 18,1%. • Icelandic personal mortages are either inflation-linked (~75%) or taken in a another currency (~25%) Mostly EUR, CHF or JPY which bear lower interest rates than ISK. • Most of those foreign loans were taken when the ISK exchange rate index averaged at 116 in 2005-2007. • Today it is almost 220. • => Everybody’s mortage payments have gone up.

  4. Public reaction to the crisis II • Regular public demonstrations have taken place since November. • Small number of people have over the last weeks attacked and injured police officers, broken into the parliament building, broken windows in the Central bank and FME

  5. Sovereign debt crisis on the way?

  6. The political landscape

  7. Independence Party convention

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