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

Iceland’s Very Loyal Friend—Richard Portes

– 113 – ICELAND’S VERY LOYAL FRIEND RICHARD PORTES ‘Prof Portes stands by his views.’ Financial Times, October 9, 20081 Not many foreign commentators can claim to be experts on Iceland. A few academics and journalists—including David Ibison of the Fi­ nancial Times—take an interest in the country, mostly through their field of expertise: economics, social issues, literature, film, tourism or sports. There are two economists, however, who have made Iceland one of their focuses: Richard Portes and Robert Wade, both Londonbased researchers and key people in the media on Iceland. Richard Portes’ name comes up often in the foreign newspapers, because of the analyses he publishes or his often controversial comments reported by financial journalists. His opinions, favourable toward the financiers, are sometimes challenged by other experts, such as Robert Wade. Both men played an important role in the media storm that swamped Iceland in 2008; they deserve specific attention because of their involvement. A professor of economics at the London Business School, Richard Portes is the founder and director of the Centre for Economic Policy Research. His profile does not specifically mention Iceland, but defines his areas of expertise as follows: ‘He has written extensively on sovereign debt, European monetary and financial issues, international capital flows, centrally planned economies and transition, macr1 Emiliya Mychasuk and Emiko Terazono, ‘Viking saga’, Financial Times, October 9, 2008, p. 20. – 114 – oeconomic disequilibrium, and European integration’.2 In November 2007, he published a 60-page report, entitled The Internationalisation of Iceland’s Financial Sector, together with his colleague Friðrik Már Baldursson from the University of Reykjavík. The study, carried out for the Iceland Chamber of Commerce, analysed the effects of foreign expansion by Iceland’s banks. In the spring of 2008, Portes remained optimistic and reassuring when the first warnings were issued about Iceland’s situation. He encouraged people to remain calm and ‘urged investors to pay more attention to the data’.3 He insisted that the banks were stable and that there was no cause for concern, maintaining that ‘these banks are strong, they have no noxious paper. ... The short-term movements are not indicative of anything but speculation’.4 Portes’ position, as reported by the London and New York newspapers , could be summarized in two phrases: the financial markets were exaggerating the seriousness of Iceland’s situation and their reaction was unjust. In March 2008, Portes told the Financial Times that Iceland was facing, first and foremost, a problem of perception. According to him, the country’s banking system was not in any danger: Prof Portes, for his part, insists that the answer to this question is actually very reassuring: if Iceland’s banking system faced a crisis, the government could either use its existing resources to rescue the banks or borrow more funds from the markets.5 2 http://faculty.london.edu/rportes/shortbio.htm, consulted in October 2009. 3 David Ibison, ‘Iceland pushes rates to 15% as turmoil bites’, Financial Times, March 26, 2008, p. 1. 4 Richard Portes, quoted by Chris Hugues and Sarah O’Connor, ‘Icelandic krona suffers amid turmoil’, Financial Times, March 20, 2008, p. 27. 5 David Ibison and Gillian Tett, ‘Indignant Iceland faces a problem of perception’, Financial Times, March 27, 2008, p. 13. – 115 – In a letter to the editor in July, Portes maintained his position and said he found the reaction of analysts to be exaggerated, including that of his colleague Robert Wade who believed that Icelanders had borrowed ‘as though there ... [were] no tomorrow’.6 For Portes, such an opinion was unjustified: ‘That sounds more like the Americans or indeed the British than the Icelanders’.7 When Iceland’s economy finally showed serious signs of weakness in October, Portes stayed the course and claimed that Iceland’s banks, which had been unfairly targeted, remained cautious and well managed: The Iceland problem was immediately vastly exaggerated . ... The world is a little unjust. ... They have been prudently managed and haven’t been excessively dependent on the wholesale money markets compared to anyone else.8 Portes was usually in agreement with the views of Icelandic top-ranking businessmen and some of the actions taken by the government. For example, when Iceland undertook its controversial negotiations with Russia, Portes supported Reykjavík’s initiative, stating that ‘it ... [was] rather imaginative of the Russians and the Icelanders. They should have done it earlier’.9 According to the Financial Times...