Cold war! As Iceland refuses to honour the British billions in its failed banks, Brown freezes THEIR assets

Daily Mail 10th October 2008

Attack: Gordon Brown said Iceland's refusal to pay back billions of pounds owed to British savers was illegal

Gordon Brown declared diplomatic war on Iceland last night.

He launched a furious attack on the 'illegal' refusal to pay back billions owed to British investors in the country's failed banks.

The Prime Minister invoked rarely-used anti-terrorism powers to freeze Icelandic assets here as fears grew that vast sums of British cash could be lost.

Private savers, companies, town halls, police authorities and charities have seen up to £20billion frozen after Iceland nationalised its three top banks.

Most private savers should be compensated under UK government guarantees.

But these do not apply to public sector bodies and charities, and it emerged yesterday that more than 100 councils had invested up to £1billion of taxpayers' money in Icelandic banks, lured by high interest rates.

Financial experts said that if the cash is lost for good, council taxes could rise every year for the next 25 years.

The crisis has also hit dozens of charities, which had investments of £230million.

Whitehall sources fear Iceland is now effectively a bankrupt state. It owes the world an astonishing £35billion – £116,000 for every man, woman and child.

Britain's relations with the North Atlantic island were rapidly deteriorating to the hostility of the 1970s 'cod wars' over fishing rights.

One unnamed minister said last night: 'It's not Cod War, it's Wad War'.

Scotland Yard is one of the big losers, with £20million invested in Iceland.

On another day of financial upheaval:

• Labour's £500billion bank rescue gamble appeared to be having little impact on the markets;
  

• The International Monetary Fund made available 'hundreds of billions of dollars' in emergency aid for countries hit by the credit crunch;
  

• Mr Brown and David Cameron stepped up their attacks on irresponsible City fat cats;
  

• Labour MPs boasted that the financial crisis could prove to be Mr Brown's 'Falklands moment';
  

• In New York the Dow Jones fell 678 points, 7.3 per cent, to close below 9,000 for the first time in five years;
  

• House prices plummeted further, losing an average of £27,000 a year.
  

But it was the turmoil in Iceland that was causing the most immediate concern. The country suspended trading on its stock exchange in a bid to prevent further market panic.

The Treasury plans to send a team of senior officials to Reykjavik to thrash out concerns about the impact on Britain. Chancellor Alistair Darling said last night: 'The Icelandic government, believe it or not, told me yesterday they have no intention of honouring their obligations here.'

Mr Brown said the attitude was 'totally unacceptable'. He said: 'I have been in touch with Iceland's prime minister. I have said that this is effectively illegal action.

'We are freezing the assets of Icelandic companies in the UK where we can. We will take further action against Icelandic authorities wherever necessary to recover the money.'

At least 80 town halls were known to have lost money, plus 15 police authorities and

In an extraordinary move, the Prime Minister used powers under the Anti-Terrorism Crime and Security Act to freeze British assets of Landsbanki, one of the collapsed banks and the operator of the popular internet account Icesave.

'I don't apologise for it,' Mr Brown said. 'This is a very unusual situation, where a

Voiced disappointment: Iceland's Prime Minister Geir Haarde

country has effectively defaulted.'

Iceland's prime minister Geir Haarde voiced disappointment at the lack of assistance he has received from Western countries and threatened to find 'new friends'.

That was seen as a clear reference to Russia, which has offered a four billion euro loan.

There are claims – denied by Reykjavik – that the Kremlin wants the use of a former U.S. military base in return.

Mr Haarde said he told Mr Darling he considered the use of anti-terrorism powers a 'completely unfriendly act'.

The Icelandic disaster could have even wider effects on Britain. Its banks and finance companies are significant shareholders or backers of household-name firms from House of Fraser to Hamleys and the frozen food store Iceland.

Iceland's president has been admitted to hospital for heart surgery, it emerged yesterday.

Olafur Ragnar Grimsson had an angioplasty operation earlier this week as the devastating extent of Iceland's economic meltdown became clear.

Aides were unable to say when he would resume his duties. Although his post is largely ceremonial, his absence will add to the country's gloom.