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Russian foreign aid, circa 2008
A E4bn loan from Russia might make financial sense – although Russians might think otherwise given Moscow’s shaky finances. But it would create strategic ructions. Iceland is a NATO member, but Russia would want something in return for a loan equal to almost a third of the tiny state’s GDP. The US would fret this could eventually mean a Russian military presence in the North Atlantic.
Here is the story. It seems that Iceland may prefer Russia to the IMF, but Russia does not yet seem on board. I can only wonder what Bobby Fischer would have said...
Posted by Tyler Cowen on October 7, 2008 at 02:08 PM in Current Affairs | Permalink
Comments
If only we could have seen Bobby Fischer versus Kimbo Slice in chess-boxing, with press conferences in between, complete with title unification controversy.
It would have been like all the Rocky movies rolled into one, but with chess. Alas, we'll have to wait for Stallone to do a chess (or competitive checkers) movie.
Posted by: Andrew at Oct 7, 2008 3:48:19 PM
A note on how this can affect actual people. I was at a conference
last week in Paris where an Icelandic economist was also. He is spending
the fall semester in Berlin. Iceland has now frozen all foreign exchange
transactions for regular citizens. He just managed to get his money from
his university to support his leave out a few days before.
Posted by: Barkley Rosserr at Oct 7, 2008 5:27:08 PM
Russian economic performance has a 0.99 correlation with the price of oil-- that is higher than in Saudi Arabia.
If i were a Icelandic Treasury official with the price of oil collapsing I would seriously doubt the ability of the Russians to help me.
Posted by: spencer at Oct 7, 2008 5:41:50 PM
Iceland seems to be playing out Tyler's scenario of "What if we didn't bail out Fannie and Freddie." Indeed, do lender's have confidence in anyone other than the US government now?
Posted by: Matt at Oct 7, 2008 5:54:23 PM
I'm no expert, but I would guess the Russian offer has a lot to do with the huge amount of Russian money in the Icelandic banking sector. From what I understand, a lot of oligarch wealth resides in Icelandinc banks.
Posted by: Mitt at Oct 8, 2008 3:58:54 AM
At the moment, Russia's huge currency reserves rest at about half a trillon dollars. The loan to Iceland is only 1% of that amount, so it hardly puts a dent in it, but buys them a certain goodwill from a troubled microstate, and isn't it in Russia's interest to put it away somewhere they believe it will at least hold it's value through the potentially rough times ahead?
But there might be a string. Iceland is bidding on a seat in the UN's security council, with votes being cast later this november, and Iceland's seat currently backed by - if I remember correctly - over a 100 nations already. Russia did not respond well to Iceland's condemnation on it's Georgian invasion this summer. A Russian backed economy to a new Security Council member might sway views to their interests in the near future.
But remember also, Iceland has always had good relation's with Russia during the 20th century. In fact, Iceland was the first western country to break a trade blockade to the Soviet Union back in the - if I remember it correctly - 1960's, in spite of harsh reactions from the US and UK. Russian trawlers and other fishing ships visit Iceland frequently, and the two nations both admire each other's sophisticated literature heritage.
Posted by: Samuel T. Petursson at Oct 8, 2008 7:36:06 AM
"From what I understand, a lot of oligarch wealth resides in Icelandinc banks"
The theory is that Samson Holding, owned by businessmen Björgolfur Gudmundsson and son Björgolfur Thor Björgolfsson, made huge profits in Russian in the 1990's when they started up breweries in Russia, backed up by the Russian mafia (propably making profits on the side via a deal with two Björgolfs). Samson then went on to buy Landsbanki, one of Iceland's three banks a few years back, and started up Straumur Investment Bank later on. But direct financial links from Russia or Russian oligarchs to the current ownership has never been made, at least not to my knowledge.
Posted by: Samuel T. Petursson at Oct 8, 2008 7:43:02 AM
A Russian base in the North Atlantic is mildly troubling. They could station a few of their functional attack subs there and pose a possible threat to shipping. That is, until a few Los Angeles class attack boats showed up and sank them all. In global geopolitics, Russia is a much different threat than a few submarines. Their population is dropping rapidly leaving a void that more fecund peoples will eventually occupy.
Of an even greater concern is the demographics of Europe. Europeans are not having babies, but their Muslim immigrants are. An unsustainable welfare state, a vigorous, young subculture and an international financial crisis may be a much greater threat than a few Russian submarines in Iceland.
Posted by: K T Cat at Oct 8, 2008 8:54:07 AM
"Russian trawlers and other fishing ships visit Iceland frequently, and the two nations both admire each other's sophisticated literature heritage."
There is an Icelandic literature :-) ?
Posted by: Kola at Oct 8, 2008 11:30:17 AM
Back in the Cold War days we use to give Iceland food aid -- technically, very long term, low interest loans to buy US food -- as part of the compensation for the US airbase we had there.
Posted by: spencer at Oct 8, 2008 3:58:40 PM
You have to consider this in perspective: Icelanders where not very happy about being abandoned by the US a couple of years back, when Bush closed the US Keflavik military base in Iceland. Today, Iceland do not have any armed forces, and relies completely on NATO for any defence and security needs. But at present, NATO appears to be far more interested in stupid US missions far away from the North Atlantic than anything else.
Good relations to Russia would serve as a proper pay-back to Bush for his negligence of the region.
Secondly, the rest of Scandinavia is quite unhappy with current US foreign policy as well. Norway is currently discussing whether to buy Lockheed Martin's Joint Strike Fighter or SAAB's JAS Gripen as their new fighter plane. After being the superior favourite in the initial stages of the competition, the JSF is now haunted with US foreign policy, which Norwegians are desperate to distance themselves from. Hence the political signals from buying the Gripen instead is more than tempting for Norwegian politicians before next year's elections.
I think the Bush administration should consider very carefully to change their North Atlantic policy, and start out by helping the Icelanders out, and show real interest in the region. Further negligence can have significant consequences for the US influence in future developments of the entire arctic region. Imagine a Russian airbase and naval base in Iceland, in combination with a chilly Scandinavia, when setting the borders and negotiating the codes of conduct over the soon-to-be ice-free arctic?
Posted by: Tord Steiro at Oct 8, 2008 6:48:53 PM
Reading the latest news:
http://www.guardian.co.uk/business/2008/oct/09/gordonbrowniceland
The Icelandic PM, Geir Haarde, announced that move after talks with Darling. He also urged his country to not panic after a third bank toppled today, and he asked the public to hold back from drawing large amounts of money in attempt to salvage their savings.
Such a move would make the country's situation more difficult, he said.
"I want to emphasise ... that people remain calm and understand that the transaction system is fully functioning and deposits are safe.
"I also ask the public not to withdraw large sums of money from the banks. It will make things more difficult."
...reminded me of this:
http://www.youtube.com/watch?v=1ntbfVQvHt8
Posted by: Jim at Oct 9, 2008 2:27:50 PM
