Electric cars

I see Australia is the latest country to start the switch to electric cars and wean its population off dependence on oil.

It follows Denmark and Israel’s lead.

New Zealand has already clinched a deal with Mitsubishi for a fleet of electric cars to be introduced in 2009. And in Japan, Japan Post is replacing its vehicles with electric equivalents.

In England, London has already been at the forefront of electric car usage and Boris Johnston has given a grant for the scheme to be extended across the boroughs of the city.

Now Brighton and Hove are planning a similar system. They successfully secured a £2.2 million grant from the EU for their project. Their 10 charging points will cost £30 000 altogether or £3000 each, quite a bit cheaper than the London counterparts.

The Australian model will be powered by renewable energy. The recharging stations will be powered by wind turbines.

Project Better Place will raise $1 billion to provide 250 000 recharging stations in the east of the country.

This works out at $4000 per recharging station.

Thats a lot cheaper than the £7000 it takes to install a recharging station in London, but I guess the price difference is down to the sheer massive scale of the Australian project.

The similar Danish system is also run by wind turbines. Around 20% of Denmark’s electricity production comes from wind, but the fact that the car batteries are traded in to charge – and they store electricity from the grid – with a number of batteries charging at any one time means that wind power can provide base load even when the wind is not blowing.

In fact, 2 million electric cars in circulation would provide Denmark with a standby capacity of electricity over 5 times its needs.

Project Better Place are in discussion with another 30 countries keen to implement the system. The mayor of San Francisco wants electric cars there.

The same company has already done the same in Israel.

Norway has about 50 recharging stations, but plans to have 400 on the go by 2011. The Norwegian Car company Think currently makes around 10 000 electric cars a year and can’t up with demand but does plan to open new factories to increase production.

Not to be left behind the Swedish Government are planning to provide a network of recharging stations across the country. It plans to be oil-independent by 2020.

The Finns seem to have taken a different approach. They have started a scheme where they convert your existing car to electric using lithium ion batteries. They claim that the top speed of your car will be a little less but the acceleration of the car will be better.

Even the Icelanders – slated by new Secretary of State for Scotland Jim Murphy as being in an ‘Arc of Insolvency’ – have just shook hands on a deal with Mitsubishi to fleet test their electric cars in the country in 2009, similar to the New Zealand deal.

Another country in Murphy’s ‘Arc of Insolvency’, Ireland, will shortly announce plans to have 10% of all its cars powered by electricity by 2020. Project Better Place are already in talks with the Irish Government. Its predicted around 50 000 jobs could be created in Ireland with the establishment of such eco-friendly policies.

So much for the environmentally aware Scandanavians and the forward thinking Irish in their Arc of Prosperity you might say. What about Scotland?

Until recently Scotland had only one electric car. That was a G-Wiz, the electric car much used in London, with a slightly dodgy safety record. It also had only one public recharging station, in the Braehead Shopping Centre.

Clydebank Housing Association has provided electric cars for its tenants at Radnor Park. They are recharged at the local power station that provides electricity for the flats.

Its been funded by a £37 000 Community Scotland grant.

The Department of Transport is also planning to pilot a ‘green van’ scheme in various locations in England from Newcastle, Gateshead, and Liverpool to Leeds and Coventry. In Scotland only Glasgow has been selected.

James May, of BBC’s Top Gear, is not a fan of the Westminster Government’s ‘green transport’ policy:

‘People think it’s about style or performance, but it’s down to the science. There has to be a hydrogen infrastructure in place to provide the energy to make electric vehicles work properly. We are nowhere near that point.’

Far from ‘kick-starting’ the revolution, May says the Government is simply ‘window-dressing’. ‘There’s a feeble bit of Congestion Charge relief if your drive an electric vehicle. This is no more a Green-vehicle strategy than my cat,’ he says.

Newer electric cars like the Smart Fortwo Electric can plug into a mains socket, has a top speed of 70 mph and can travel for 75 miles without a recharge.

The new Tesla Roadster is an electric sports car, assembled by Lotus. It can do 0 – 60 in 3.9 seconds and can travel 244 miles on a single charge of its battery. Of course it does cost 99 000 euros or around £84 000.

75% of Scots in a recent survey said they would consider changing to an alternative powered car if they became readily available.

The Scottish Government has planned a consultation exercise on electric cars this Autumn. But there are already calls for the SNP Government to try and get Project Better Place’s network in Scotland.

But if it doesn’t act soon Scotland could be the poor relation of Europe in electric car takeup.

Spain has announced a target of 1 million electric cars on its roads by 2014.

Germany is launching its own network of electric car recharging stations.

Portugal is also announcing its own network of recharging stations. It will build 1300 stations by 2011.

France has recently announced a $549 million investment in electric and hybrid cars.

With the SNP Government’s commitment to renewal energy surely the Danish model based on wind turbines is the way forward? The combination of providing much more base load than we need and have the rest exported, the reduction of carbon emissions and the prospect of being oil independent when the oil finally runs out must be the favourite way ahead.

Back to James May:

‘The wind blows, the waves roll, the sun shines. The moon in the sky plucks at the sea to makes the tides, and Tennyson’s wild cataract leaps in glory. And he wasn’t talking about an eye infection. All of this will go on for as long as there is a world, and we need convert only a very tiny amount of it to electricity to keep driving until the sun goes out.’

Iceland and Russia

In 1972, Iceland was the stage for one of the more dramatic encounters of the Cold War.

This time it was over a chessboard.

The tempermental American genius Bobby Fischer was up against the reigning World Chess Champion Boris Spassky, a Russian.

Both players felt the pressure and accusations flowed from Russia to America and back again that the other side were trying to subvert their opposing player.

Finally, once Fischer settled his fee and actually made his mind up to play chess, the American triumphed over the Russian.

Then the reclusive American declined to defend his trophy and the Russians under Anatoly Karpov once again assumed the title in 1975.

Fischer, once the beloved darling of America, was a troubled soul. He praised the September 11th attacks on America saying the U.S. should be ‘wiped out’. Apart from a 1992 rematch against Spassky – which he won, although both players were well past their best – he had retired from Chess. He died early this year.

Iceland, situated at the edge of Europe, has often been the site of such American – Russian meetings. It has often acted as a bridge between the two nations.

It is, however, a founder member of NATO.

So it must cause America some alarm when Iceland has now turned to Russia for a 4 billion euro loan.

It cites lack of help from its NATO allies when dealing with its banking problems in the global credit crunch. I have cited before the help that Norway gave Iceland; it seems its other NATO allies weren’t quite as generous.

“We have not received the kind of support that we were requesting from our friends,” said prime minister Geir Haarde. “So in a situation like that, one has to look for new friends.”

Although Iceland has said that they have not made any military concessions yet to the Russians, it must be a concern to NATO. Iceland’s position in the North Atlantic is vital for allowing movement between the U.S. and Europe, the so-called GIUK gap (Greenland-Iceland-UK). If Iceland was to allow any Russian bases on its soil, that would seriously compromise NATO.

Its the makings of another political chess match.

Coincidentally, today was the start of the 2008 World Chess Championship between Viswanathan Anand, the current World Champion from India, and Vladimir Kramnik, the previous champion from Russia and the man who took the title from Garry Kasparov. (Kramnik had also beaten Bulgarian Veselin Topalov, the FIDE champion and his win unified the chess crown and brought FIDE to prominence again.)

Today’s game was drawn, something that favours Anand as Black.

Kramnik,V (2772) – Anand,V (2783) [D14]
WCh Bonn GER (1), 14.10.2008
1.d4 d5 2.c4 c6 3.Nc3 Nf6 4.cxd5 cxd5 5.Bf4 Nc6 6.e3 Bf5 7.Nf3 e6 8.Qb3 Bb4 9.Bb5 0-0 10.Bxc6 Bxc3+ 11.Qxc3 Rc8 12.Ne5 Ng4 13.Nxg4 Bxg4 14.Qb4 Rxc6 15.Qxb7 Qc8 16.Qxc8 Rfxc8 17.0-0 a5 18.f3 Bf5 19.Rfe1 Bg6 20.b3 f6 21.e4 dxe4 22.fxe4 Rd8 23.Rad1 Rc2 24.e5 fxe5 25.Bxe5 Rxa2 26.Ra1 Rxa1 27.Rxa1 Rd5 28.Rc1 Rd7 29.Rc5 Ra7 30.Rc7 Rxc7 31.Bxc7 Bc2 32.Bxa5 Bxb3 draw.

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Rankings and levers

Newspapers have been quoting the survey by the World Economic Forum in which business leaders have been rating the solvency of world banks.

The rankings however were compiled just before the recent £50 billion bail-out by the UK, the nationalisation of the Icelandic banks and the larger US bail-out.

The website has the co-authors interviewed from the 3rd to the 7th of October. The report itself was published on the 8th October.

RANKINGS

1. Canada

2. Sweden

3. Luxembourg

4. Australia

5. Denmark

6. Netherlands

7. Belgium

8. New Zealand

9. Ireland

10. Malta

11. Hong Kong

12. Finland

13. Singapore

14. Norway

15. South Africa

16. Switzerland

17. Namibia

18. Chile

19. France

20. Spain

21. Barbados

22. Bahrain

23. Slovak Republic

24. Brazil

25. Estonia

26. Austria

27. Panama

28. Mauritius

29. Kuwait

30. Qatar

31. United Arab Emirates

32. Trinidad and Tobago

33. Senegal

34. Israel

35. Portugal

36. Iceland

37. Cyprus

38. Botswana

39. Germany

40. United States

41. Lithuania

42. Peru

43. El Salvador

44. United Kingdom

45. Greece

46. Benin

47. Costa Rica

48. Malawi

49. Guyana

50. Malaysia

51. India

52. Puerto Rico

53. The Gambia

54. Montenegro

55. Mexico

56. Croatia

57. Czech Republic

58. Jordan

59. Ghana

60. Suriname

61. Brunei Darussalam

62. Latvia

63. Saudi Arabia

64. Kenya

65. Jamaica

66. Honduras

67. Zambia

68. Burkina Faso

69. Slovenia

70. Sri Lanka

71. Pakistan

72. Philippines

73. Republic of Korea

74. Romania

75. Thailand

76. Madagascar

77. Colombia

78. Cote d’Ivoire

79. Italy

80. Bulgaria

81. Hungary

82. Cameroon

83. Georgia

84. Oman

85. Tunisia

86. Paraguay

87. Nigeria

88. Armenia

89. Morocco

90. Dominican Republic

91. Bolivia

92. Malia

93. Japan

94. Tanzania

95. Moldova

96. Bosnia and Herzegovina

97. Poland

98. Nicaragua

99. Venezuela

100. Uruguay

101. Guatemala

102. FYR Macedonia

103. Syria

104. Albania

105. Nepal

106. Mozambique

107. Russian Federation

108. China

109. Uganda

110. Serbia

111. Egypt

112. Ukraine

113. Vietnam

114. Turkey

115. Bangladesh

116. Azerbaijan

117. Taiwan, China

118. Ecuador

119. Mauritania

120. Mongolia

121. Indonesia

122. Zimbabwe

123. Tajikistan

124. Kazakhstan

125. Cambodia

126. Burundi

127. Chad

128. Ethiopia

129. Argentina

130. East Timor

131. Kyrgyz Republic

132. Lesotho

133. Libya

134. Algeria

Yes. That’s right.

The UK lies behind Peru and El Salvador.

Now given this report was a survey of the world’s economists whose advice our banks were no doubt taking; should we believe it?

Are the UK’s banks really behind Peru, El Salvador and Senegal?

Or is it an accurate representation that is slightly out of date, compiled as it was slightly before the bail-outs?

That must depend on whether you believe the bail-outs will work.

If reports are to be believed the Royal Bank of Scotland is next in line to be nationalised tomorrow. If that happens then there will be further pressure on the remaining UK bank’s to be nationalised too. The banking sector could be picked off one by one by the market and the taxpayer forced to pick up the tab.

On that Iain Dale post there have already been comments about the English taxpayer bailing out the Scottish bank.

It must be a pity, to all those who carp, that Scotland is not already independent.

An independent Scotland with a similar oil fund like our neighbour Norway could be similarly insulated from these turbulent times.

It would also have the economic levers to maintain its economy best, not just for the South-East of England as remains the case today. Remember Eddie George, the former Governor of the Bank of England: Unemployment in the north is a price worth paying for affluence in the South!

Although the credit crunch is global, take a look back at those rankings.

Sweden, Luxembourg, Denmark, Belgium, Netherlands. All small countries lying in the top 10.

Even Ireland, who have recently guaranteed all deposits in their banks, are sitting 9th.

The argument that Scotland is too small to be financially unstable is farcical! I don’t hear anyone saying that Denmark is too small and should be run from Berlin. (Not since the days of Adolf Hitler and the Second World War anyway!)

As countries large and small struggle with the credit credit crunch from the U.S. and Russia down to Iceland with its 300 000 population, this population argument of independence must be seen to be invalid. Iceland, with a population slightly smaller than North Lanarkshire, isn’t exactly Miramont Gardens in Pimlico!

What matters now is that we take the right decisions to get out this mess.

Those decisions may be different for each country. They may even be different for England, Scotland, Wales and Northern Ireland.

That’s why its important key economic levers are devolved away from Westminster.

Otherwise the Eddie George syndrome will hamper ‘the North’ recovering for years.

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End of the Bank of Scotland

The loss of the Bank of Scotland is a national disgrace.

A disgrace not brought about by Scotland – but by Westminster and this Labour Government.

Some time ago I posted a blog that related how Iceland’s commercial banks – especially Landsbanki and Kaupthing – had high value CDS figures (610 and 856 respectively) which meant that they were particularly vulnerable to collapse in the credit crunch.

The population of Iceland being small (only 300 000) they couldn’t afford to step in and nationalise their banks. Fortunately they organised a loan from their friends in Norway and that sorted things out.

Norway with a population of 4.7 million, slightly smaller than Scotland. It also had the foresight to initiate an oil fund; something that the SNP plans to do with Scotland’s oil.

Back in March the Bank of Scotland had a CDS of 235.

Not in any great danger. And even that number would have been lower without all the mortgages that came with the Halifax merger. Of course, the Halifax merger in 2001 wasn’t the end of the Bank of Scotland; it just renamed its Edinburgh global headquarters and put Halifax in front of its name. It wasn’t moving anywhere.

Now of course due to market speculation and short trading on HBOS shares bringing panic it seems there will be a merger of HBOS and Lloyds TSB.

The new bank will be based in London and initial reports are the bank will be renamed Lloyds Halifax.

Its the end of one of Scotland’s leading financial companies, and the end of its proud history. Established in 1695 before the Treaty of the Union with England, it financed Jacobite rebellions and was the first bank in Europe to print paper money.

I would doubt if Scotland had been an independent country this historic bank would have been let to die in such a merger.

If Norway could afford to bail out their Icelandic neighbours with their oil fund, I’m pretty confident that an independent Scotland would have used its oil fund to do likewise, if it became necessary.

And that’s a big if. I’m sure that an independent Scotland would have used all the mechanisms at its disposal to save help our economy through these trying times. Mechanisms that only on Tuesday Alex Salmond was epousing on Newsnight Scotland that should have been applied before now – and that every commentator on Wednesday’s programme bar one agreed with.

Whereas only last week Merwyn King announced the Bank of England SLS – transferring of mortgages into liquid stock scheme – would not be extended. After the run on HBOS it was forced to change its mind Tuesday afternoon.

Of course, Gordon Brown was aware that he had already bailed out one bank, Northern Rock. With his popularity in freefall at the moment and seemingly having no answers to solve this country’s economic problems, he instead pressured Lloyds into the merger.

So should he be praised for saving jobs then? Its his running of the UK economy thats caused the Bank of Scotland to die!

Its like a penniless crofter killing his entire stock of breeding cattle and saying today’s pies tasted nice! It may be true but its not foresighted.

Surely only a fool would praise penniless crofter Gordon Brown for today’s pies? Step forward George Foulkes!

Is this Gordon Brown’s idea of Britishness? Forcing long standing proud Scottish institutions and global financial players to be repatriated to London? Part of his long game to ensure that Scotland’s finances will be bereft and beholden to London? Just like a colony then?

I feel ashamed that under a Scottish Prime Minister’s stewardship of the UK economy that this proud bank and Scottish institution is being allowed to die.

Gordon Brown. The man who killed the Bank of Scotland.

That will be his epitaph.

I doubt even Margaret Thatcher would have sunk so low.

Gordon Brown must go.

Arrivals and departures

It seems Jack McConnell, the ex-First Minister of Scotland, has demanded that the Homecoming event planned for next year becomes even more internationalist than it is currently.

McConnell began the Homecoming event and it was taken on by the SNP. It is planned to celebrate the 250th year since Robert Burns birth. (I guess Jeremy Paxman won’t attend!)

Its yet another example of the previous administration breaking the terms of the Scotland Act without sanction – but when the SNP want to talk to Norway about a sub sea cable, in that case Westminster wants to put its oar in.

As I’ve previously stated this hypocrisy only leads to the conclusion that the Scotland Act is not worth the paper its written on.

Jack McConnell has been relatively silent of late. He is due to take over as the British High Commisioner in Malawi when Richard Wildash quits his post in January 2009.

Could this be the start of a few parting shots before he goes?

In which case has he been informed of a potential date for his Motherwell and Wishaw seat’s by-election?

And could Labour be possibly lining up the Glenrothes by-election on the same day, to try and split the SNP’s weight of numbers on the ground?

I think we should be told.

Sub sea cables and double standards

It seems the Scotsman has a story of the SNP being ‘slapped down by Westminster’ over attempted talks to create a Scotland to Norway subsea cable.

At the heart of the matter is Westminster wanting to enforce the Scotland Act of 1998 which forbids the Scottish Government to have any international relations and any involvement of the generation and supply of energy.

Why this is an issue for Westminster now – with an SNP Government – is a mystery.

They seemed to be happy with Scotland’s unilateral involvement with aid for Malawi.

They seemed to be happy with Scotland promoting Tartan Day in the U.S.

They seemed to be happy when the 2006 Scottish Executive funded a feasibility study into running subsea cables from the Western Isles and the Orkney and Shetland Isles to the Scottish mainland.

They seemed to be happy when the 2006 Scottish Executive were considering plans to run subseas cables to Ireland and Norway.

Yes. You guessed it. All initiatives started by the last Labour and Liberal Democrat Scottish Executive.

All breaking the terms of the Scotland Act.

Previously not an issue.

But now when all the SNP Government want to do is talk, its strange that Westminster is hiding behind the terms of the Scotland Act in trying to deny them a freedom of speech.

The law should be the same for everyone; no matter which Government – it can’t be overlooked when your pals break it.

Otherwise its a bad law and needs to be revised.

The fact that all parties in the Scottish Parliament – SNP, Greens and Independent for independence; and Liberal Democrat, Labour and the Conservatives in the Calman Commission (with the blessing of the Westminster Government) – want the powers of the Scottish Parliament increased, changing the terms of the Act – agree on revising the law, all imply the latter conclusion: Its a bad law.

The mature approach then from Westminster would be just to let those breaches pass – as it did in the past – before the Act itself can be changed; instead of enforcing a law that has the agreement of no-one.

Enforcing it now seems petty, small-minded and just plays into the hands of the SNP.

And just reeks of double standards!!

Wedge Politics

Alex Salmond has been accused of using wedge politics over Scotland’s oil revenues.

He has asked the UK treasury for a slice of the unexpected profit that the treasury has gained, given the high oil prices recntly.

Wedge politics is issuing controversial issues to split the opposition support.

In this case, for example, the wedge issue would be oil.

Many people around the UK have been complaining about the high price of oil. The SNP have suggested a fuel duty regulator – as the Treasury earns more money from the high oil price, it cuts other fuel dutys on oil slightly, thus giving our oil-dependent economy a bit of breathing space.

This idea has been taken up by several Labour MPs, chief among them Stephen Ladyman – mentioned before in this blog on The English Labour Party – the former Transport minister.

The other idea Alex Salmond has been promoting has been an oil fund for Scotland, much like the Norwegian model – again mentioned before on this blog Arc of Prosperity. This idea is not new, and again Labour MPs were supportive; Malcolm Wicks, UK Energy minister, speaking in October 2007:- “If you could replay history, the idea as in Norway of building up a national [oil] fund is actually quite an attractive one.” Of course now that Alex Salmond has once again raised the issue, the Labour Party is trying to backtrack on the issue.

The idea of an oil fund was first suggested by Gavin McCrone in his report of 1974. See my blog End Game for more on that.

Wedge issues or not, they prove that it is not just the public that is swayed by sensible ideas. Even opposition MPs can be swayed.

Wikipedia has these four aims of wedge politics when used against other political parties:-

1. A debate, often vitriolic, within the opposing party, giving the public a perception of disarray.
2. The defection of supporters of the opposing party’s minority faction to the other party (or independent parties) if they lose the debate.
3. The legitimising of sentiment which, while perhaps popularly held, is usually considered inappropriate or politically incorrect; criticisms from the opposition then make it appear beholden to special interests or fringe ideology.
4. In an extreme case, a wedge issue might contribute to the actual fracture of the opposing party as another party spins off, taking voters with it.

I would suggest that here only the first point is valid, although in this case the Labour Party were already perceived to be in disarray before the oil issue. Various disastrous election results and the ill thought 10p tax issue has already proved the point.

Politics like this have always happened the world over. The name Wedge politics and its formalising as a political technique, is based on an Australian immigration issue of 2001.

At the time, Australia was the target of shipbound asylum seekers. A distressed ship’s passengers were picked up by the Norwegian ship MV Tampa and 460 asylum seekers boarded.

The governing Liberal Party wanted to look tough on asylum seekers, the opposition Labour Party were largely in favour of more lenient policies. With public opinion on the side of the Liberals, the Labour Party leader Kim Beazley changed tack and also favoured the tougher policies. The Labour Party appeared split and thus lost many voters.

Wedge politics have also been used in the United States, where the Democrat party managed to split the Republicans on immigration issues in 2007; and in Canada where the Conservatives try and split the Liberal Party on gay marriage policies, and the Liberals try and split the Conservatives on bilingualism.

I suspect though that the SNP policy is not formulated by wedge politics. Scratch under the skin of the SNP’s policies and they all come down to one single thing. It was highlighted in Alex Salmond’s first speech as First Minister in the Scottish Parliament.

“I commit myself to leadership wholly and exclusively in the Scottish national interest”

It’s SNP policy to stand up for Scotland. Every issue, every time.

For the unionist parties, thats a tough one to wedge.

Broadband take-up

These are the latest World Broadband ratings by ITIF:-

I’m going to concentrate this blog on the first column. That of broadband penetration; what percent of the countries population has access to broadband internet at home.

A recent Ofcom study found the UK’s figures slightly higher than ITIF, sitting at 57%. I hope this is indeed the case. I’ll use the Ofcom figures as accurate for the UK and the ITIF figures as accurate globally. Where the Ofcom figures match in the case of Belgium and the US, I’ll put the UK behind both countries as a low ranking 57%.

Sorting the ITIF list purely on Broadband takeup we get:-

1. South Korea 93
2. Iceland 83
3. Netherlands 77
4. Denmark 76
5. Switzerland 74
6. Norway 68
7. Canada 65
8. Finland 61
9. Australia 59
10. Belgium 57
11. United States 57
12. United Kingdom 57
13. Luxembourg 56
14. Japan 55
15. Sweden 54
16. France 54
17. Spain 49
18. Germany 47
19. Republic of Ireland 46
20. Austria 45
21. Portugal 44
22. New Zealand 42
23. Italy 41
24. Czech Republic 30
25. Hungary 29
26. Poland 23
27. Turkey 23
28. Slovakia 22
29. Mexico 20
30. Greece 18

I think that broadband takeup is the more relevant figure posted by ITIF. Speed and price are market factors, but the takeup figure roughly shows the percentage of people that use the internet and roughly shows your market audience. (Obviously countries with extremely large populations with lower takeup are not on the list e.g. China, India, Russia.)

Now regular readers might suspect that I’ll be analysing the UK figures in detail, and breaking them down to England, Scotland, Wales and Northern Ireland. They would be right!

As this blog already is on the long side though, I’ll refrain from the compare and contrast – till later.

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Arc of prosperity

The credit crunch. Soaring oil prices. Soaring utility bills. Soaring food bills.

One of the worst affected countries is the UK, but probably the most affected country is Iceland.

Now Iceland is regularly hailed by the SNP as part of the Arc of Prosperity, one of an arc of Scotland’s neighbouring countries that always seems to be doing rather better than us, outstriping the UK economy by miles.

One of the SNP’s goals is for Scotland is to join that Arc of Prosperity and better its economic growth rate. Obviously they claim independence would be the best route to achieve this; it gives Scotland full fiscal control over its own economy.

(Other countries in the Arc of Prosperity:-

Norway. Population 4.7 million
Denmark. 5.4 million
Finland. 5.3 million
Ireland 4.3 million
Sweden 9.1 million

All apart from Sweden have populations in size similar to Scotland; and all have had sigificantly higher economic growth than Scotland and the UK for many years now.)

So whats happened in Iceland? With the country performing so well economically and with a population of only 300 000 people, the banks wanted and got foreign investment. The Icelandic Government even loosened its fiscal policy before the 2007 election. Foreign capital poured into Iceland.

Now when the U.S. subprime mortgage market collapsed and started the credit crunch, foreign investors panicked and the money dried up. Some wanted their money back. All this has devalued the Icelandic kröna and forced the Icelandic bank to set interest rates at 15%. The country is now suffering the worst effects of the credit crunch I mentioned at the start.

Compare this with the U.S. They too are suffering the credit crunch, but are still receiving massive foreign investment. Why? Because they have a vast consumer-led population (around 304 000 000, around 1000 times bigger than Iceland’s). Hence the dollar has weakened recently; but relative to the Icelandic körna isn’t so bad and interest rates arent so bad.

One rate to look at is the current CDS rates of banks. These are Credit Default Swaps, basically a measure of how much insurance the bank needs for its debt. The higher the number the worse off the bank.

For example, when the Northern Rock was nationalised its CDS was at 295. [18 Feb 2008]

CDS have been increasing throughout the banking sector however. The US Bank Bear Sterns was bailed out by the US Government with a CDS of 720. [Mar 2008]

Other March 2008 CDS of banks were:-

Lloyds TSB 133
Barclays 170
HSBC 145
Bank of Scotland 235
Alliance and Lecicester 342

but the British banks were nothing like the Icelandic banks:-

Landsbanki 610
Kaupthing 856

Iceland, with a small population; for years one of the best economies in the world. It made a mistake relying on too much foreign capital. And when that foreign capital ran into problems, so did it. Its tough for the Icelanders, having being used to the good life for years, and now feeling the worst effects of the credit crunch. The credit crunch may be global but Iceland are feeling short term consequences of their own mistakes. Yet had the U.S. subprime mortgage market held up it may have never mattered.

Thats why the Icelandic government is now thinking of joining the Euro. The Euro is strong and the Eurozone – those countries that use the Euro as their currency – is now the biggest economy in the world, after the dollar weakened in March 2008. The Eurozone has a population of 320 000 000 people and is expected to grow as other European Union countries meet the criteria for membership.

So then what of the Arc of Prosperity? Is it in financial ruins?

Iceland may be in trouble now but remember they started from an economic base much higher than the UK or Scotland. Their problems are all relative, and will probably only result in a decline in economic growth for a couple of years, before resuming their position back near the top of the world’s economies. Even if these problems do continue then they always have the Euro to fall back on if needed, although their fishermen probably won’t like joining the EU.

What’s more another Arc of Prosperity country – Norway – has just given them 1.5 billion euros to shore up the Icelandic economy. And if Norway can afford to bail out other countries in the midst of a global credit crunch then the Arc of Prosperity can’t be doing that badly.

The Arc is better placed than most to ride out the credit crunch. I’m sure Gordon Brown and Alistair Darling will try their best for the UK.

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