Thursday, October 9, 2008

Geopolitics and financial crisis

Dopeyness warning.  Whilst I was familiar with the Icelandic bank balance sheets relative to GDP (Iceland is the second most bank revenue to GDP in the world after Switzerland which tells you something) I was simply sure - and wrong - about Iceland being an EU member state.  

They are not - as many comments have pointed out.  My mistake.

I was also familar with Kauthing Edge and Ice Savings - and indeed had mentioned them in the comments - and was concerned about the effect of the Icelandic banks on the Norwegian deposit market.  (If you look back at past posts I found some Norwegian readers to confirm to me what DNB Nor management was saying).  

I am a dope.  I thought that there was no way the UK would allow the Icelandic banks to raise 5 billion pounds plus in deposits at high rates in the UK unless they were forced to under EU rules.  

Something else went wrong with UK policy here.  Either way its very problematic.


I am short Swedbank.  It’s a call on the collapse of the Baltic States – something I regard as almost inevitable.

The risk with that short is a bail-out because the Baltic States are geopolitically significant.

But then I am wondering how dumb American foreign policy is becoming.  Russia is now lending Iceland 4 billion euro.  A lot of money to be sure – but the Spectator is speculating (probably with reason) that the quid-pro-quo is allowing Russia to use the former US military bases in Iceland.

The Spectator also reports that the US were asked for the loan first and declined.

Some questions: what is political union in Europe if Europe will let a member state have an Argentina type default event?  Where is the Committee to Save the World?

Who is in charge here? 

Is it an enormous geopolitical decision to allow Russia to have a refuelling base in the middle of the Atlantic?  Hey – a failed adventure in Iraq is a 1000 billion plus experiment.  This one is cheap.

I have a question for the conservatives: would Ronald Reagan have allowed it?


Anonymous said...

1. The great Ronald Reagan was fighting the evil in the world (a concept alien to secular socialists, i.e. the Democrat Party higher echelons and their lord-savior-barack-hussein-obama). In Mr. Reagan's time the evil empire was the Communist ideology in the face of the Soviet Union. Ronald Reagan identified the enemy and stood up. He didn't retreat. He challenged the evil ideology. The secular-socialists in Europe and America made fun of him. But the enslaved nations and the individuals in the Soviet Union saw him as a liberator, which he was. The history vindicated him.

2. George W. Bush is fighting (another) evil in the world - Islamic fascism. The same ideology that welcomes suicide bombing (9/11 in NYC or 7/11 in London), forbids little girls going to school (Afganistan), executing homosexuals (Iran), calling for the destruction of a sovereign state (i.e. Israel); blows up 7th century Buddhist statues (Afganistan), engaged in genocide (Darfur) bombs trains (in India), persecutes Christians (See Coptic Egyptians) and on and on. I will stop here. There is no point, because the secular-socialists can't face the facts.
3) One approach of fighting Islamo-fascist ideology is to give the Muslims a choice, i.e. a state where liberty is paramount, where religious people of different faith are not persecuted by the state (Shia), where ethnic differences are not ground for genocide (Kurds vs. Arabs), where there is a representative form of government - elections, etc. Will it work? Its hard to say, but that's the BEST hope for the world of Islam. The other two alternatives are : Islamic theology, i.e. Iran, former Afganistan, Saudi Arabia, Somalia, Lybia, etc. OR national-socialist ideology in Syria, Egypt, Algeria, Tunisia, etc.

So, now the future generation of Muslims can choose:
1) Iraq (imperfect yet still a representative democracy with free market) or at least moving in that direction,
2) Islamic government (Iran, Taliban, Saudis)
3) Nazis - National Socialists - Egypt, Syria, Agleria, etc.

Maybe this will clarify. :)

John Hempton said...

I guess I asked for Conservative comments - so I deserve what I get.

But it was John McCain who said he looks into Putin's eyes and he sees KGB.

I think Putin was unnecessarily combative in that debate - but - I maintain at 4-6 billion dollars the US in the Cold War would have just signed the chit...

This is a different world with different uncertainties...

Blank Xavier said...

> Some questions: what is political
> union in Europe if Europe will let
> a member state have an Argentina
> type default event?

At the end of WW1, Woodrow Wilson essentially imposed the notion of Collective Security upon Europe (and caused WW2).

It doesn't - *cannot* - work. See Diplomacy, Kissinger. Basically, nations have their own interests and if it is not in their interest to go to the line to support someone else, they won't. You can *say* what you like, when push hasn't come to shove - but when it does, what you *do* is what you really think and you *won't* go to the line for someone else *unless* it's actually in your national interest to do so.

NATO worked because there was a single external threat; it wasn't Collective Security (we all pledge of help each other in the event of any of us having a problem) - it was "we're *all* going to lose to the Russians unless we band together".

Likewise, the notion of Europe supporting itself doesn't work. It is not in the national interest of say Germany to use German money to bail out Italian, French, Icelandic, etc, banks. Why should it be? Germany has its own issues, it's own goals and its own limited resources. Germany looks after Germany. Ditto every other country in the world.

The idea countries would truly put themselves on the line just to help other countries is fantastical. There cannot be a pan-european response, because it would require the subjugation of national interest.

Blank Xavier said...

> I think Putin was unnecessarily
> combative in that debate - but - I
> maintain at 4-6 billion dollars
> the US in the Cold War would have
> just signed the chit...

Russia isn't a military threat. Russia is a complete and utter PITA, but it's not a threat. Nuclear weapons, sure, but so what? sledgehammer, nut, not useful.

Militarily Russia is a joke now. Miniscule defence budget. I'm inclined to say the US just don't care, have enough problems of their own and aren't going to get sucked into other peoples banking crisis'.

I'd also say they prolly know Iceland will need a LOT more than 4,000 million to keep them going, so what's the point in throwing that money away?

mean mister mustard said...

Well, you got one 'conservative' comment. I haven't sold enough mobile homes in Mississippi to qualify as 'conservative'. But Ronnie "Chauncey Gardner" Reagan would have stood up to evil commies above all else, just because.

Yes, US Foreign policy has gotten goofier over the past few decades. And Bush is doing his best to reach a peak.

Unlike Anon, I think BHO offers some uniquely high upside to the US. Perhaps this is the real reason for the dollar's recent rally? BHO has perhaps the broadest understanding of humanity of any world leader in the past few decades. And he is not beholden to the redneck rich in the US, as are the Republicans (and even Clinton was/is). BHO's likely latitude in action is staggering, but so is the pile of turds inhereted from the GOP.

If BHO can re-cast the US role by say, putting GWB and others up for war crimes as they belong, he can win BIG points with many countries. If he can re-cast the fiscal burden in the US (not a GOP strong point!) he can reduce US borrowing. If he can make diplomacy work (no way with GOP/GWB) he can save a bundle by trimming the redneck jobs program (U.S. Defense Dept.).

The ridiculousness of the Russian-Iceland deal highlights the wild variance in the impact of geopolitics. Yes, the US is currently moronic, but its political institutions make it more nimble than China or Putin's Russia. These drivers aren't financial per se, but in a crisis or even in a competitive environment, all things have to be considered.

Erik said...

Regarding the EU and Iceland I can tell you that Iceland isn't a member of the EU at the moment although I read some rumours that said that they would like to fasttrack a EU membership right now. So the EU isn't letting down one of it's member countries.

Anonymous said...

Iceland is NOT part of EU nor part of EMU.

They overleveraged themselves with dirty Russian oligarch money.

They can rot in hell for all we care.

They have not supported European values, thus we will not support them, except buy their assets 10cents on an Euro on forced liquidation sales.

Good riddance.

I hope they learn their lesson for a long time.

Morten said...

Iceland is not a member state. But I wonder if they wish they were by now...

Anonymous said...

Iceland isn't in the EU! Fact check your article...

Anonymous said...

john, iceland is not part of the european union, so no eurpean union money coming forth. it might be a tough punishment, as iceland, norway and several other states have profited from the EUs policies and trade agreements without ever wanting to be part of it; so there you go. As to geopolitics, before reaching conclusions, id like to see if russia got any tangible and workable promises.

elartistamadridista said...

Iceland is not a member of the EU.
We certainly don´t want to see a developed country defaulting, that could be another nail in the coffin of confidence but, other than that, I doubt Iceland is of much importance, geopolitical or otherwise.

Anonymous said...

great post, the first one. Woudl just like to remind our friend that Bush's allies are Islamic theologists (Saudi Arabia, and national socialists Egypt) and wherever he 'd put Pakistan . Ah what an easy world it would be with such clear distinctions... Also, are really only 3 choices there for new generations? Couldnt they opt for a Turkish style secular govt, or a gulf states mnarchy. Just asking.

dsquared said...

Andrew Neil is quite clearly bullshitting here. He thinks that Keflavik airbase is "defunct" because that's what it says on Wikipedia. Actually, when the US mothballed it, the Russians started flying missions over Icelandic airspace all the time, causing Iceland (a founder member of NATO) to ask for support. This is now provided on a rotating basis by NATO members and there is a squadron of Mirages there right now.

Anonymous said...

Iceland is the first unsinkable Nimitz class aircraft carrier (cost $4.5B USD) that GWB has sold the Russians.

Taiwan will be the next Nimitz class carrier that will be sold to China.

John B said...

While Iceland isn't a member of the EU, it's a member of EFTA. This is effectively the same as being a member of the EU in all but two respects:

1) you don't have to join the common fishing policy (which obviously wouldn't do Iceland much good)

2) you don't get to vote on EU financial and trade rules, you just have to follow them

So the point that the UK government was forced under EU rules to allow the Icelandic banks to operate in the market is correct, despite Iceland's non-EU-membership.

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