Iceland Crisis: Panic Spreads

A small bank in a small country—but so was the bank that triggered the Great Crash of 1929. Andrew Neil on the overnight rollercoaster in Europe and Asia's markets.

Stop press: It’s just been announced that Icesave, an Icelandic internet bank, has stopped British customers from withdrawing their money. It’s the first bank to refuse to pay out money since the financial crisis began. A small bank in a small country, of little relevance to the rest of us? Perhaps. But then it was the failure of a small bank in Austria which sparked off the Great Crash of 1929. Be afraid. Be very afraid.

Awake this morning to a new villain in the global financial meltdown. No, not Dick Fuld, the avaricious and bombastic boss of Lehman Bros. whom the US Congress yesterday accused of giving massive pay-offs to various executives while rattling the begging bowl in front of the Feds for a taxpayer bailout (and paying himself close to $500m since 2000 for a presiding over the sort of “success” which ends in bankruptcy). No, he was yesterday’s villain; you went to bed with him last night. Roll over, open your eyes and say hello to German Chancellor Angela Merkel.

If President Bush thinks he's done with bank nationalisation he could have another think coming.

The European commentariat decided to blame her this morning for yesterday’s stock market crashes. After her inability to give a straight answer to a simple question—is the German government guaranteeing German bank deposits?—and the confusion over the fate of Hypo, a huge German property lender, which had to be bailed out twice in one week, Europe’s stock markets decided it was time for a selling frenzy.

The British, still happiest when a German as the villain, led the lynchmob. Last night, on BBC TV’s Newsnight (think ABC’s Nightline, but with depth), not just the anchor but studio guests (a former British finance minister and a senior UBS economist) turned on the hapless German ambassador to London, like wolves ravaging a sheep. He tried to argue that the clarity of Ms Merkel’s position had been “lost in translation”—but that doesn’t explain why Germany’s DAX index fell most of all. Clearly Ms Merkel’s financial German is not that much better than her translator’s English.

On the other side of the world comes a chink of light. While you were asleep, Asia-Pacific stock markets bounced from earlier losses after falling sharply in early trading when Australia’s central bank cut interest rates by a full percentage point , more than had been expected; the Sydney market immediately rose 2%. Most Asian markets, including Japan’s Nikkei, still finished Tuesday down on top of yesterday’s collapse—but that Aussie rate cut slowed the slide, in anticipation of rate cuts elsewhere.