Thawing out – Iceland and the UK

Mark Leftly meets politicans and bankers looking to attract British investors back to the country

Insurance companies described the 1,000-degree lava bombs that the Eyjafjallajokull volcano fired 150 metres into the air as an "act of God", a legal term designed to get them out of compensating air passengers grounded by the resulting ash clouds.

Three-and-a-half years on and that eruption has been something closer to a Godsend for Icelanders. Disaster tourists have flocked to the volcano, helping to slowly rebuild an economy that was so disproportionately hit by the financial crisis.

"It really wasn't planned," says Hoskuldur Olafsson, the chief executive at Arion Bank, with a smile. "But the eruption turned out to be a positive. The rest of Europe discovered that we are not that far away."

Mr Olafsson was one of Iceland's business and political leaders who were in London yesterday at a Mergermarket conference to push for foreign investment in the country.

Arion was created out of the ruins of Kaupthing, one of the Icelandic banks whose failures necessitated a $2.1bn (£1.3bn) bailout from the International Monetary Fund in 2008. Earlier this year, Arion was the country's first financial institution to raise money from the international bond markets since 2007, a significant step to restoring Iceland's reputation for sound finance.

The 60 investors in that near-$90m bond issue included institutions from the UK, historically an important trading partner due to the countries' shared focus on high finance. Today that relationship is shaky at best due to the fall-out of Iceland's problems.

"We will not forget," says Mr Olafsson, the smile disappearing from his face. "But at least Gordon Brown has gone."

In 2008, Mr Brown's government used anti-terrorism legislation to freeze the UK assets of Landsbanki. Within weeks, about 40,000 Icelanders – well over 10 per cent of the population – had signed a petition protesting at the British government demonising them alongside al-Qaida and the dictatorship of Sudan.

The UK then chased Iceland for £2.3bn the Treasury had paid to cover the savings of 230,000 British customers in Landsbanki's Icesave. It took until January this year for the European courts to finally conclude that the UK's compensation claim was invalid and that Iceland had done nothing wrong.

"It [the Icesave dispute] has disturbed this very close relationship," Mr Olafsson says.

"On a government level, the UK is tarnished. There are legacy issues … but we have to move on."

However, he argues that in recent months Arion and other banks are seeing increased contact from British and other foreign businesses about setting up and working in Iceland.

He points out that Iceland's GDP is now at "an acceptable level" and that unemployment is back down to 4 per cent [see box], important in a low-population country where "every hand needs to be working".

Although strict currency controls introduced in 2008 continue to complicate investment, the country's recently installed centre-right administration is looking to scale back this regime.

Iceland's industry minister, Ragnheidur Elin Arnadottir, says that she is "looking to build that trust again" between Reykjavik and London. Unlike Mr Olafsson, she is keen to stress that the nations' tensions have been "resolved within the court system – there is no need to worry about investing [in Iceland]".

Any tensions will certainly need to have been sorted out should Iceland push ahead with a plan to build a 727-mile power cable across the ocean floor to Scotland. This would link Iceland to the European energy market, helping to develop and sell its untapped power reserves.

Ms Arnadottir recently commissioned a second study into this "huge project", as there have been wide disparities on the subsea cable's potential profitability.

She hopes to put this report to her cabinet and parliament by the end of the year, but has already stated that she would be unwilling to press ahead if the project endangered taxpayers' money.

Ms Arnadottir is speaking by telephone from the east of Iceland, ahead of meeting a company that controls street lamps in Germany. "I don't know how they do that, but I will in half-an-hour," she laughs, stressing that start-up companies are now flourishing in a country that became such a symbol of the crisis.

"We have recovered," she says. "The mood is getting better and we need to increase investment."

Whether or not Iceland forgets its travails with the UK, the country will at least need to forgive any perceived injustice if it is to secure British investment.

Road to recovery: Economy growing

Analysts at Arion describe Iceland's economy as being on "a slow, but fragile road to recovery", pointing out that the country's banks collapsed after "access to what seemed to be unlimited foreign borrowing".

The acute recession saw unemployment peak at 9 per cent, though this had nearly halved to 4.7 per cent by June this year.

Similarly, inflation shot up to around 20 per cent, but in August was only 4.3 per cent – albeit still a distance from the 2.5 per cent target.

Most importantly, the country's economy has been growing since 2011. This follows 10 consecutive quarters of contraction, which saw the economy shrink by between 10 and 11 per cent.

PROMOTED VIDEO
Arts and Entertainment
Outlaw Pete is based on an eight-minute ballad from Springsteen’s 2009 Working on a Dream album
arts + entsFirst tale will be about bank-robber called 'Outlaw Pete'
News
Bill Kerr has died aged 92
people
News
Angelina Jolie with her father Jon Voight
people
Sport
footballPremiership preview: All the talking points ahead of this weekend's matches
Arts and Entertainment
Tulisa as a judge on the X Factor in 2012
tvLouis Walsh confirms star's return
Life and Style
fashionClothes shop opens on Bill Clinton Boulevard in Pristina
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
Warner Bros released a mock-up of what the new Central Perk will look like
tv'Friends' cafe will be complete with Gunther and orange couch
News
Keira Knightley poses topless for a special September The Photographer's issue of Interview Magazine, out now
people
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
Life and Style
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SAS Business Analyst - Credit Risk - Retail Banking

£450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...

Project Manager - Pensions

£32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...

KYC Analyst, Birmingham - £200-£250 p/d

£200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...

Test Manager - Banking - Yorkshire - £450 per day

£400 - £500 per day: Orgtel: Test Manager - Banking - West Yorkshire - £400-£5...

Day In a Page

Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone