Asset freezes.  Threats of litigation.  Expressions of mystification about the intentions of a foreign government.  The latest round with another axis of evil country?  No: the current state of relations between the UK and Iceland.  As we were saying before we were so rudely interrupted, Iceland is leading the way from a banking crisis to a sovereign debt crisis, and significant overseas impact is being felt in the UK given the presence of subsidiaries of Icelandic banks.  The recent statements from Alistair Darling tell the story.

Yesterday he dealt with branches and subsidiaries of Landsbanki, closing the branch, freezing all UK assets of the parent, and moving the remaining deposit business to ING (there’s another angle here of how ING has emerged as a relative winner from the global crisis but that’s for another story).  He also shut down Kaupthing Singer & Friedlander, a subsidiary of Kaupthing, despite Kaupthing’s protestations that it was still in business and well capitalized (Guido had the obituary).  Those claims unravelled today when it was taken over by the government of Iceland.  ING again picks up the retail deposit business, but the Treasury says that it cannot establish the government of Iceland’s intentions to meet its deposit guarantee obligations.  In addition, wholesale depositors for now are expected to join the line of creditors.  This is where the Irish bank guarantee will seem very attractive, since wholesale deposits are covered.  But the Labour government may be nostalgic for the days when Iceland’s best known export was Bjork.