The End of Iceland's Innocence: The Image of Iceland in the Foreign Media during the Financial Crisis

Bankruptcy—Iceland Became Synonymous with Crisis

– 92 – BANKRUPTCY ICELAND BECAME SYNONYMOUS WITH CRISIS ‘Iceland will go down in history as a textbook example of how excess credit can derail an economy.’ Financial Times, October 8, 20081 ‘Countries don’t go bankrupt’, declared a U.S. Citibank executive in the 1980s,2 referringtoemergingmarketswhosefinancialdifficultieswere undermining his institution. During 2008, journalists and financial analystsrepeatedlystatedthatthesources—andconsequences—ofthe crisis went beyond finance. They believed that a crisis of confidence was eroding the global economy. The public’s confidence in its institutions became shakier as certain wellknown, reputable banks buckled under the weight of the crisis, then crumbled. Confidence deteriorated all the more rapidly as the countries that were to regulate and guarantee deposits and savings showed signs of weakness. As one economist told the International Herald Tribune in October 2008, ‘There is no such thing as a safe bank now. They are only as safe as the authorities make them.’3 The crisis hoever, brought down more than financial institutions: it threatened to topple governments and entire countries. The tragedy of Iceland’s ‘bankruptcy’ was that it stemmed from an emotional statement made by the country’s Prime Minister, Geir 1 Julian Callow, quoted by Chris Giles, ‘Topsy-turvy logic leaves an unpalatable choice’, Financial Times, October 8, 2008, p. 4. 2 Walter Wriston, quoted by Harry Koza, ‘Citigroup’s toxic assets should prolong any rescue attempt’, Globe and Mail, November 28, 2008. 3 Willem H. Buiter, quoted by Carter Dougherty and Landon Thomas Jr., ‘Britain earmarks $87 billion to bail out banks’, International Herald Tribune, October 8, 2008. – 93 – Haarde, on national television on the evening of Monday, October 6, 2008. Intending to explain the situation that forced his government to give the Icelandic Financial Supervisory Authority control of the banks, Haarde said: ‘We were faced with the real possibility that the national economy would be sucked into the global banking swell and end in national bankruptcy.’4 Haarde had wanted to reassure Icelanders, bankers and the rest of the world, but his statement set off a chain reaction with serious consequences. He then tried to clarify his remarks, but it was too late. The idea that Iceland was on the verge of bankruptcy—even though technically a country cannot go bankrupt—was reported by media around the world. The night after he made the statement, the British media, followed by American and European, broke the news: the crisis had brought down the first country and Iceland was in national bankruptcy. Once the announcement appeared in the media, all qualifying information rapidly disappeared. Iceland became a bankrupt country, so much so that the expression ‘Iceland-like bankruptcy’ was used to describe other economies known to be precarious. Iceland was referred to as a bankrupt country (without any qualification) on numerous occasions by the foreign media in late 2008. Here are a few examples: Now bankrupt Iceland.5 (October 8) As a result, in Iceland today, it is the entire country that is in bankruptcy.6 (October 9) 4 Geir Haarde, quoted by Tom Braithwaite, ‘Iceland takes emergency action’, Financial Times, October 6, 2008 (italics added). 5 Frances Williams, ‘US retains top competitiveness ranking’, Financial Times, October 8, 2008. 6 Yves Mamou, ‘De la difficulté d’anticiper les crises’, Économie, Le Monde, October 9, 2008, p. 3. The original quote read: ‘Du coup, en Islande aujourd’hui, c’est le pays tout entier qui est en faillite’. – 94 – In the past few weeks, Iceland has gone bankrupt.7 (October 22) [Iceland] went bankrupt, Monopoly style, with accounts frozen, credit blocked, and savings up in smoke.8 (October 24) After Iceland’s bankruptcy, will the Baltics follow?9 (November 6) The Icelandic government tried—completely in vain—to convince the media that, despite the Prime Minister’s statement, the island was still a responsible, viable and solvent country. News bearing Geir Haarde’s unfortunate choice of words continued to spread and raised concern in other countries. Here, for example, is what a commentator for Le Monde wrote a week after the incident in an article entitled ‘The solvency of states starts to concern traders’: ‘The country is not bankrupt for the moment; it is not forsaking its obligations’, clarified Geir Haarde, the Prime Minister of Iceland, more seriously on Friday, October 10. Why would the Icelandic government be more solvent than the collapsing Icelandic banks it just urgently nationalised? By acquiring rotten banks and toxic assets, doesn’t it become...