LONDON (Reuters Breakingviews) - Iceland and Greece are rare examples of European countries experimenting with capital controls. Their approach to wooing back private investors is somewhat different. Iceland, which ended eight years of controls on March 13, seems altogether less starry eyed.
Kaupthing, one of the north Atlantic state’s lenders that went bust in 2008, said on Sunday it had sold a 30 percent stake in its so-called good bank, Arion, to hedge funds including Och-Ziff, as well as Goldman Sachs. The buyers have been given sweeteners to invest. As well as paying 48.8 billion kronas ($450 million) for their new stake, they get the option to buy another 21.9 percent at an undisclosed, higher price. The hedge funds and Goldman already own a big chunk of Kaupthing.
Such terms look less saccharine than those doled out by Athens almost four years ago. For every share acquired in 2013, private investors in Alpha Bank were given the chance to buy 7.4 further shares at a price a shade higher than where they had bought in. While that meant there was a slight premium involved, it also came with the right to buy a much larger slab of the company’s equity.
A bigger difference is that in 2013, Greece was desperate to avoid full nationalisation for its banks. Iceland, by contrast, wants to exit a banking collapse that has already happened. Even more so than Greece, it’s important to get the balance between private investor and public finances right – after all, this is a tiny country where a banking sector whose assets exceeded 10 times GDP eviscerated the nation’s finances when it collapsed.
A more basic difference is the economy. While Greece’s gross domestic product didn’t grow in 2016, Iceland’s jumped over 7 percent. Greek banks are enmeshed in bad debts and the sovereign still has an unsustainable debt position partly caused by its euro membership, whereas debt as a proportion of GDP in Iceland is recovering. As the colder country with a much warmer economy, Iceland can afford to be relatively picky.