DISPATCHES Reykjavik – Iceland in meltdown
Iceland’s central bank will review its interest rate again on 6 November following its slashing of the rate from 15.5% to 12% mid-October, citing the ‘grave situation’ facing the country. Iceland’s entire banking system collapsed in the first week of October, with the krona effectively stopping trading a week later as the country’s government held talks with Russia and the IMF to secure a loan. The government has invoked new powers to stabilise its financial system in the wake of the collapse of its three major Icelandic financial institutions. However it desperately needs to shore up its currency before it can begin to try to unfreeze Iceland’s domestic economy. Among the banks’ overseas assets now being offloaded are the several British high street chains belonging to Baugur. The group, shouldering €1.25bn debt, has attracted interest from private equity firms, including TPG, Alchemy and Permira, and British retail entrepreneur Philip Green.
London – UK prepares for big chill Prime minister Gordon Brown’s £37bn (€46.25bn) epic bailout of the UK banks (see panel, opposite page) has not managed to lift talk of recession. Unemployment could hit 2 million by the year-end, with the number of jobless rising at the fastest rate for 17 years in the three months to the end of August, according to official figures released midOctober. Analysts noted grimly that the figures predated September’s financial meltdown. Moreover, surging gas and electricity bills sent inflation in September to 5.2% year on year – its highest level since March 1992 and up from 4.7% the previous month. This rise in inflation means that public expenditure is set to jump by £3bn (€3.75bn) more than planned next year. Most analysts expect that the half-point cut in interest rates will have to be followed by a series of bigger cuts in a bid to redeem consumer confidence. House prices, down around 20% from their June 2007 high, are expected to continue to fall because mortgage lending in 2008 and 2009 – with the government literally now holding the purse-strings – is expected to be around just a third of 2007 levels.
Paris – EDF to be power behind British nuclear energy French energy giant EDF has agreed to buy British Energy, the UK’s largest electricity producer, in a €15.75bn deal. EDF returned with an improved bid for the British firm after its initial approach was blocked by shareholders in July. Providing the transaction gets the go-ahead, EDF has pledged to build a new generation of nuclear reactors in the UK. “Good value for the taxpayer,” was British Prime Minister Gordon Brown’s verdict on the deal. But some newspapers felt ‘selling off’ Britain’s nuclear industry to a company that is more than 80% owned by the French state was a timely indictment of the UK economy. Consumer groups expressed concern that the disappearance of another independent utility company could result in higher bills. Such critics are unlikely to be impressed by Vincent de Rivaz, EDF’s UK head, who told them, via a British paper, to “stop whingeing”.
Ljubljana – Slovenia set for new Social Democrat era The centre-right Slovene Democrats headed by Janez Jansa lost power in the 21 September election after voters expressed disillusionment with his government’s modest reform record, and with its often abrasive style. The result suggests the next government will be a minority one headed by the Social Democrats, led by Borut Pahor, which has governed Slovenia for most of the years since independence in 1991. Most observers expect the sluggish privatisation programme to be slowed even further with the government focusing on tackling inflation — currently around 7%, the highest in the eurozone — without damaging the country’s increasingly fragile growth outlook.
8 CNBC EUROPEAN BUSINESS I NOVEMBER 2008
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