A word of explanation about our Iceland post* from a couple days ago. In September the WSJ's Energy Roundup blog (now refocused as Environmental Capital) had this post:
Glitnir Goes Geothermal
Steve Gelsi has this report on plans for a big investment in geothermal projects:
Glitnir said it’s planning to play a visible role in an estimated $40 billion financing push behind geothermal energy projects in North America by 2025 as the Nordic financial group eyes growth in the business of harnessing heat from the earth to produce electricity. (This paragraph has been corrected; see below.)
Taking aim at a competitive financing market for alternative energy deals, Glitnir will attempt to outflank the likes of Credit Suisse, General Electric, Siemens and others by focusing on geothermal.
“There’s competition on all angles…the challenges are numerous, but the opportunities huge,” said Arni Magnusson, managing director of sustainable energy for Glitnir. “We haven’t seen any big banks with a singular interest as we have. We’ve decided to narrow our focus down to geothermal, and the U.S. market is on top of the list.”...Yesterday the WSJ's MarketBeat blog said:
...Iceland is one of those sexy stories that people like to focus on — country-specific meltdowns, where interest rates skyrocket and investors pull funds on worries about strength of a particular nation’s finances. Iceland’s central bank recently boosted the key interest rate to 15% as foreigners have pulled back from profitable trades on the high yields available in that country due to concerns about the banking sector there. The frigid Scandinavian nation’s largest banks have incurred large debts as a result of financing economic activity through massive borrowings, and they’re encouraging lending through higher rates in order to finance activity there. It’s the kind of thing that can get repeated from time to time in other markets where there are high deficits and high interest rates, such as Turkey and Eastern Europe. This may not be more than a country-specific event, though.
Still, as global risk appetites fall, investors get wary, which is what has happened in Iceland, where the Icelandic krona has fallen by 20% against the euro this year. “The more sophisticated investors had been getting out earlier, and then finally the pain became too much for less sophisticated as well,” says Clyde Wardle, emerging markets currency strategist at HSBC Bank USA.
And this morning we read in the Telegraph:
Iceland contagion may spread far and wide
As Iceland goes, so go the Baltics, the Balkans, Hungary, Turkey, and perhaps South Africa. All are living far beyond their means, plugging the gaping holes in their accounts with fickle flows of foreign finance. All have let credit grow far above the safe "speed limit", some exceeding 50pc a year.
For Iceland, the high-wire act of the last five years may have finally reached its limits. The central bank was forced to raise interest rates to 15pc this week in an emergency move to halt the collapse of krona, which has fallen 18pc since mid-March.
The country's all-conquering banks - led by Kaupthing, Glitnir, and Landsbanki - have pushed the asset base of the Icelandic banking system to a world record of eight times GDP, tapping the global capital markets to launch Viking raids across Britain, Scandinavia and beyond....
Reading Mr. Evans-Pritchard's Balkan reference, you can almost hear a muted drumbeat of 1914. Spooky.
Everything is connected. Mr. Gongloff's Energy Roundup post had a musical reference that led to my riffing on Icelandic bands in the post Oil Markets, Metal Bands and Where are the Proceeds from the Live Earth Concerts? :
...The AA story apparently got the WSJ.com's Markets Editor thinking of metal bands,
Alcoa is currently operating the Fjardaal smelter at Reydarfjordur (great band name: Fjardaal Smelter — ed.)leading me to comment on the only Icelandic metal band I know:
ed. you missed a calling as a naming consultant. For the Goth/Metal crowd: http://www.myspace.com/thorshamrariceland Not to be confused with Iceland’s answer to the Fab Four; Thorshammers. Probably would have gone further as Fjardaal…
*Iceland in Trouble, Central Bank Raises to 15%