Iceland PM says UK bubbles risk bank collapse

Tim Wallace
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BRITAIN has failed to learn from the financial crisis and is building up the same problems that led to the collapse of Iceland’s banks, Iceland’s Prime Minister told City A.M. yesterday.

Lenders in Europe and the UK are still encouraged to lend to borrowers who want to invest in bubble-prone assets, like stocks and housing, Sigmundur David Gunnlaugsson said, rather than more productive long-term projects.

Iceland plunged into a deep recession in 2009 and 2010, but also had a more rapid recovery – in 2011 the economy expanded 2.7 per cent.

“What I find particularly worrying and would like European countries including the UK to learn from is that many European banks are still functioning on the grounds of regulations which caused the bubble in Iceland,” Gunnlaugsson said. “Europe still has a financial system which puts the rest of the economy in danger by having legislation which encourages asset bubbles and constant gearing up of institutions to blow bubbles.”

Iceland, he said, had to learn from its mistakes and reshape its banks to focus on more traditional savings and investment, which he hopes will stop a repeat of the crisis. He fears that has not happened here: “Europe needs to go through how the financial system works – in Iceland we were in a position where we needed to consider why it went wrong, what could we have done differently and what we can do to prevent it from happening again.”