On thin ice

7 October 2008 By George Hay Follow @gfhay

Iceland s lastditch move to peg its currency to the euro should help to stabilise its stricken economy. But without capital controls, it will need more foreign currency. A E4bn loan from Russia is one way. But IMF money would come without strategically ominous strings attached.

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Iceland's central bank governor, David Oddsson, said on October 7 that talks were ongoing with Russia over a potential E4bn loan. Oddsson said he was optimistic negotiations would be successful and said any help from Russia would be welcomed.

Separately, the International Monetary Fund revealed it had sent a "factfinding" team to Iceland.

The developments came as Landsbanki, the country's second largest bank, was put into the Icelandic equivalent of Chapter 11. This involves the government seizing control of its assets and managing them itself, and was prompted by lenders refusing to accept Landsbanki assets as collateral for overnight repofinancing.

Depositors in Landsbanki's UK arm Icesave rushed to remove their savings following the news, prompting the bank to place a temporary ban on withdrawals.

The central bank also fixed the value of its currency, the krona, at 131 to the euro. It has fallen 35% against the European currency this year.

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