Krona falls 45% against euro as financial trading put on hold

ICELAND COLLAPSE: ICELANDERS WERE keeping their cool yesterday as the krona fell to its lowest level against the euro and trading…

ICELAND COLLAPSE:ICELANDERS WERE keeping their cool yesterday as the krona fell to its lowest level against the euro and trading across the financial sector was put on hold.

Shares and other financial instruments in Kaupthing, Landsbanki and Glitnir were suspended along with those in Exista, the investment company, Straum Burdaras investment bank and Sparisjodur Reykjavikur, the savings bank.

On currency markets the krona fell as much as 45 per cent against the euro in volatile trading after days of emergency talks have so far failed to produce a comprehensive bailout plan to ease the plight of the stricken banking sector.

Antje Praefcke, analyst at Commerzbank, said the country faced a "balance of payments crisis". "We would also not be surprised to see the Icelandic krona lose its function as a medium of payment."

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The prime minister addressed the nation last night and released a statement emphasising a "focus on repatriating a large proportion of assets abroad, with the aim of strengthening the krona".

Pension funds have been urged to repatriate overseas assets and banks have been asked to help solve their own liquidity problems by selling foreign assets. In spite of the market turmoil, Kaupthing, the country's biggest bank, remains well capitalised and is trying to quell doubts among savers in the UK.

In its most important and controversial intervention so far, the central bank last week agreed to spend €600 million on a 75 per cent stake in Glitnir.

Most Icelanders approach the banking crisis phlegmatically, although some have lashed out at the young entrepreneurs who transformed the country's business reputation with an aggressive attitude to overseas expansion and a taste for debt.

At the weekend bankers came to forget their troubles at the 101 Hotel in Reykjavik, designed by Ingibjörg Palmadóttir, wife of the controversial entrepreneur Jón Ásgeir Jóhannesson. Frank, the American-Icelandic barman, is leaving it behind for a holiday in Montreal. "We have a US account so we're going to spend dollars," he said.

The plunging krona is the clearest symptom for most Icelanders of the malaise gripping the country. The annual Christmas shopping trip to Nordic neighbours is likely to see a reverse this year: instead of Icelanders heading to Copenhagen or Oslo, the shoppers may be travelling in the other direction. - ( Financial Times service)