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Landsbanki Freezing Order 2008

My Lords, I congratulate my noble friend Lord Myners on his appointment to the Government’s Front Bench and on his informed contribution to our debate. His reputation comes before him and he arrives at a time when the Government need his considerable financial sector experience in the House. We all look forward to his many contributions to our debates in the future. I want to say a few words about the impact on Iceland of what is happening. Before doing so, I declare an interest: my wife is an Icelander. She retains her Icelandic nationality, although she is a citizen of the United Kingdom, and we do not have any deposits in any Icelandic banks. I have visited Iceland many times over the years, and there is constant, almost daily, contact between my family, my wife and her family in Iceland. Our family in Iceland tells us that everyone is profoundly affected by the current crisis. People in Iceland believe that there is a real risk to their savings, despite government assurances to the contrary. They believe, in particular, that there is a risk to the savings of the elderly, who were advised to invest in products that are believed to be at risk. There is already public debate over a proposed reduction in pensions, which is frightening generations of people. Some Icelanders have foreign currency mortgages and are particularly vulnerable to the loss of their homes. There is fear of massive inflation if the currency is to be refloated. Prices are already beginning to rise, some by 50 per cent. Many people are worried about a possible exodus of parts of the working population unless an early solution is found. There is worry over students abroad being called home. The banks in Iceland are seeking to be flexible on necessary expenditure, although that obviously does not deal with the effects of currency devaluation. For many Icelanders, the opportunity to travel abroad may well now be frozen. As my sister-in-law has said to me on the phone, ““I am a prisoner in my own country””. There is a strong feeling that action taken in the case of Kaupthing was premature. There is concern that discussions with the Russians over financial support should have been interpreted as an invitation for Russian domination, a suggestion made in the British press. The proposition is regarded in Iceland as ludicrous. There is also concern that the actions of a few Icelandic oligarchs, as I would almost describe them, should be blamed on the whole population of Iceland. The population of Iceland is not to blame for what has happened. Finally, there is deep-seated resentment over the use of counterterrorism legislation. My view is that there is a complete failure of Icelanders to understand that alleged statements by David Oddsson on central bank deposits, which triggered a sovereign debt downgrade, placed the UK Government in an impossible position. That statement, with reported suggestions that attempts might be made to move Icelandic assets out of the United Kingdom, meant that, if the Government had not acted, they would have been accused of dithering. That was not going to happen. Our mistake has been not to separate out the issue of economic well-being and damage into self-standing legislation. I understand that there were some calls for that in recent years—the noble Baroness, Lady Noakes, referred to this—but that we simply did not have the legislative peg and opportunity to do so. We really need to get this message over to the Icelandic people, because they do not understand the pressures that the British Government were under. The transcripts of conversations between the two Governments, and statements by the ministerial team in Iceland and by David Oddsson, should be made available in their entirety. The fullest possible explanation of all Icelandic and British actions and discussions should be made available, otherwise the issue will fester like an open wound. I cannot exaggerate the impact of the Government’s action on the attitude of the people of Iceland towards the people of Britain and the resentment that it has generated. Far more information needs to be placed in the public domain so that we fully understand the position in which we have been placed. I am concerned also about the artificial pegging of the krona by the Icelandic authorities at a rate of just over 200 krona to the pound, which cannot be sustained long term. The narrow spread between buy and sell in conditions where Icelanders are finding it almost impossible to buy sterling for foreign visits—they can buy, but only in very special circumstances—and for expenses incurred abroad will leave British visitors to Iceland feeling short-changed, yet Iceland has no alternative if it is to protect its economy and avoid massive, immediate inflation and an explosion in wages. I am concerned also about the failure of the rating agencies within the United Kingdom to recognise the potential for difficulties. There have been references to reports in the British media, but why did alarm bells not ring when, earlier in the year and prior to the period of currency uncertainty in recent weeks, the currency fell 20 per cent against sterling, which itself was in difficulty, and when the Icelandic banks were paying 16 per cent on deposits? What is the solution? Iceland must no longer be allowed to climb out of its only-too-frequent economic crises by way of devaluation, as has happened over the years. The banks need stability. Iceland needs to rebuild its financial system on currency stability and it needs the euro. Politicians in Iceland must grasp the nettle. People on the streets of Iceland say that they need the stability of the euro, yet many politicians there are locked into an anti-euro position, perhaps in part because of their concerns about having to make concessions in fisheries policy. The voice on the street in Iceland says: ““Join the euro and stop the nonsense””. I hope that Iceland does so and that the British Government will play every part possible in trying to help Iceland through its current difficulties. We have to understand the difficulties for the Icelandic population. If Iceland decides to proceed down the euro route, we must give it every possible support, because we will have its people on our side. If Iceland ultimately joins the euro, I hope that it will do so without having to concede anything on the fisheries front. Western European nations may demand greater access to Icelandic fisheries, but many of us would firmly oppose that. There is no alternative to the euro. I hope that my noble friend is able to take that position this evening.