The question of when it would have been right to intervene – and how – is extremely difficult to answer, however. No one has perfect foresight. Many lessons will doubtless be learned from the experience of the past few years, including lessons about capital and liquidity requirements, concentration of financial company ownership, financial links between owners and financial companies, and financial companies’ ownership of other businesses, to name a few. But those lessons are outside the scope of my talk today. Conditions in the global financial system are at their worst since the Great Depression, particularly after the collapse of Lehman Brothers. It is virtually an unprecedented crisis. Perhaps it is possible to say after the fact that the fall of Lehman sealed the fate of Iceland’s banks. Once Lehman had failed, nothing could have saved them. Assets had become almost impossible to sell due to the crisis of confidence and the global credit squeeze the Icelandic banks faced a much harsher operating environment and could expect that strict limitations would be placed on their foreign deposit business – if it were not stopped entirely. Government authorities in other countries consulted with one another more and more frequently on these issues. Early in October, the Icelandic Parliament passed emergency legislation authorising the Financial Supervisory Authority to take over the banks’ operations. The authorities had no choice but to act on that authorisation immediately, take over the three large banks, and divide their operations into two parts, the old banks and the new.
When the agreement was officially signed at the Hofburg Palace here in Vienna this summer, with the Austrian president in attendance, I was reminded that it would perhaps have been impossible to achieve such an outcome on such a delicate and sensitive issue without this foremost mental closeness and some similarity of thought. However over the top it might seem to some, we are indeed very close mentally as well as geographically – perhaps more so than we would care to admit and more than we would like to admit, I should add. So, if you want to know a bit about the future of our economic, civic and other relationships and want to know how the other country is going to respond/react, all you need to do is look in the mirror. As really, you look at your neighbour in the Czech Republic or Austria, you will see something of yourself. Our relationships are sometimes like those within a broad family. Needless to say, we don’t always get along swimmingly. Besides many positive emotions, there is sometimes envy, spite, bickering, lack of understanding. Again, how typical are all these emotions for broader families. As a result, issues can arise between us. But that feeling of closeness in my eyes remains and should remain. It is a feeling I firmly believe we might share.