The Icelandic Banking The Icelandic Banking CrisisCrisis

The Collapse of Iceland’s Banks: The The Collapse of Iceland’s Banks: The predictable end of a non-viable business modelpredictable end of a non-viable business model

In early 2008 the Icelandic bank Landsbanki asked Willem Buiter In early 2008 the Icelandic bank Landsbanki asked Willem Buiter and myself to write a paper on the causes of the financial problems and myself to write a paper on the causes of the financial problems faced by Icelandic banks and the possible policy options for the faced by Icelandic banks and the possible policy options for the banks and the Icelandic authorities.banks and the Icelandic authorities.

We prepared a report in April and in July we presented a slightly We prepared a report in April and in July we presented a slightly revised version in Reykjavik to an audience of economists from the revised version in Reykjavik to an audience of economists from the central bank, the ministry of finance, the private sector and central bank, the ministry of finance, the private sector and academics.academics.

Landsbanki considered our report to be too market sensitive to be Landsbanki considered our report to be too market sensitive to be put into the public domain and we agreed to keep it confidential.put into the public domain and we agreed to keep it confidential.

But, the worst possible outcome has occurred; Landsbanki is in But, the worst possible outcome has occurred; Landsbanki is in receivership. We have now published our results.receivership. We have now published our results.

Iceland, was a wealthy country withIceland, was a wealthy country with

High quality economic institutions, High quality economic institutions, governance and policy makinggovernance and policy making

Sustainable public financesSustainable public finances Flexible marketsFlexible markets A first-rate labour force A first-rate labour force

But, there were warning signs early last But, there were warning signs early last spring that not all was well …spring that not all was well …

Credit Default Swap marketCredit Default Swap market

A CDS is a credit derivative instrument A CDS is a credit derivative instrument where one party makes periodic payments where one party makes periodic payments to another party in return for that other to another party in return for that other party making a payment if the underlying party making a payment if the underlying instrument defaults.instrument defaults.

The underlying instrument might be The underlying instrument might be corporate debt, an emerging market bond, corporate debt, an emerging market bond, or a mortgage-backed security.or a mortgage-backed security.

CDS spreadCDS spread

The spread of a CDS is the annual amount that The spread of a CDS is the annual amount that must be paid over the length of a contract must be paid over the length of a contract expressed as a percentage of the notional expressed as a percentage of the notional amount.amount.

Suppose that the CDS spread is 100 basis Suppose that the CDS spread is 100 basis points. A basis point is 1/100 of a percentage points. A basis point is 1/100 of a percentage point. So, an investor buying 10 million euros point. So, an investor buying 10 million euros worth of protection would pay one percent of 10 worth of protection would pay one percent of 10 million euros, or 100,000 euros.million euros, or 100,000 euros.

Thus, the spread is related to the perceived Thus, the spread is related to the perceived probability of default.probability of default.

HistoryHistory

Credit default swaps were introduced by Credit default swaps were introduced by JP Morgan in 1997.JP Morgan in 1997.

By mid-2007 the market had a notional By mid-2007 the market had a notional value of $45 trillion, twice that of the US value of $45 trillion, twice that of the US stock market.stock market.

This is not a typical insurance marketThis is not a typical insurance market

You do not have to have an You do not have to have an insurable interestinsurable interest in the in the underlying security: you do not have to own it or even to underlying security: you do not have to own it or even to suffer a loss if there is a default!suffer a loss if there is a default!

Typically in insurance markets, you do need an insurable Typically in insurance markets, you do need an insurable interest.interest.

For example, the UK Life Assurance Act of 1774 makes For example, the UK Life Assurance Act of 1774 makes it illegal to buy life insurance on someone else’s life it illegal to buy life insurance on someone else’s life unless you are economically dependent upon them.unless you are economically dependent upon them.

This ensures that the transaction is insurance and not This ensures that the transaction is insurance and not gambling. It also protects against some obvious moral gambling. It also protects against some obvious moral hazard problems!hazard problems!

See Willem’s 16 Mar 2009 See Willem’s 16 Mar 2009 Financial TimesFinancial Times blog for more blog for more on this.on this.

The market is also unregulatedThe market is also unregulated

No one is ensuring that buyers of risk No one is ensuring that buyers of risk actually have the necessary fundsactually have the necessary funds

As a result, spreads reflect the risk that the As a result, spreads reflect the risk that the buyer of the risk might not be able to fulfill buyer of the risk might not be able to fulfill his obligations.his obligations.

CDS ratesCDS rates

Beginning of 2007Beginning of 2007 Landsbanki: 18Landsbanki: 18

Kaupthing: 27Kaupthing: 27

Glitnir: 24Glitnir: 24

Late Mar/early Apr 2008 Late Mar/early Apr 2008 peakspeaks

Landsbanki: 850Landsbanki: 850

Kaupthing: 1140Kaupthing: 1140

Glitnir: 1026Glitnir: 1026

In addition,In addition,

The FX swap market became disfunctional The FX swap market became disfunctional in March.in March.

On 1 April, Fitch put the three banks on On 1 April, Fitch put the three banks on Rating Watch NegativeRating Watch Negative

On 17 Apr 2008 S & P’s lowered the long-On 17 Apr 2008 S & P’s lowered the long-term foreign-currency rating of the term foreign-currency rating of the Republic of Iceland from “A+” to “A”.Republic of Iceland from “A+” to “A”.

What was going on?What was going on?

There was nothing obviously wrong with There was nothing obviously wrong with the three large Icelandic banks.the three large Icelandic banks.

They were not believed to be significantly They were not believed to be significantly exposed to the US sub-prime mortgage exposed to the US sub-prime mortgage market.market.

They were not as leveraged as many other They were not as leveraged as many other European banks.European banks.

What economists had to say:What economists had to say:

Later Federal Reserve Board member Ric Later Federal Reserve Board member Ric Mishkin and his co-author Tryggvi Herbertsson Mishkin and his co-author Tryggvi Herbertsson said that “financial fragility is not high and the said that “financial fragility is not high and the likelihood of financial meltdown is very low.” likelihood of financial meltdown is very low.” (May 2006)(May 2006)

LBS Professor Richard Portes and his two LBS Professor Richard Portes and his two Icelandic coauthors studied the banks and Icelandic coauthors studied the banks and concluded, “The internationalisation of the concluded, “The internationalisation of the Icelandic financial sector is a remarkable Icelandic financial sector is a remarkable success story that markets should better success story that markets should better acknowledge.” (Nov. 2007)acknowledge.” (Nov. 2007)

Banks are vulnerable to runsBanks are vulnerable to runs

The canonical liquidity The canonical liquidity crisis is a bank run: if crisis is a bank run: if each depositor believes each depositor believes that all other depositors that all other depositors are going to withdraw are going to withdraw their assets then each their assets then each depositor’s rational depositor’s rational response is to withdraw response is to withdraw his own. The outcome – his own. The outcome – a bank run – validates the a bank run – validates the depositors’ beliefs: it is depositors’ beliefs: it is individually rational, but individually rational, but socially disastrous.socially disastrous.

New Style Bank RunsNew Style Bank Runs For highly leveraged institutions that fund themselves For highly leveraged institutions that fund themselves

mainly in the wholesale capital markets, an analogous mainly in the wholesale capital markets, an analogous event is possible .event is possible .

in the belief that other creditors will be unwilling to roll in the belief that other creditors will be unwilling to roll over or to extend new their loans to a borrower whose over or to extend new their loans to a borrower whose obligations are maturing, each creditor finds it optimal to obligations are maturing, each creditor finds it optimal to refuse to roll over his own loans or to extend new loans refuse to roll over his own loans or to extend new loans to the borrower. to the borrower.

As with a classic bank run, this scenario can occur even As with a classic bank run, this scenario can occur even when the assets of the bank are believed to be sound, if when the assets of the bank are believed to be sound, if only they could be held to maturity only they could be held to maturity

The credit crisis made things worseThe credit crisis made things worse

Bank costs increased, raising the likelihood that Bank costs increased, raising the likelihood that any bank would become insolvent. any bank would become insolvent.

By coordinating market beliefs about Icelandic By coordinating market beliefs about Icelandic and other banks it made bank runs based solely and other banks it made bank runs based solely on self-fulfilling expectations, rather than on self-fulfilling expectations, rather than fundamentals, more likely. fundamentals, more likely.

It made it more difficult for banks to insure It made it more difficult for banks to insure themselves against runs. themselves against runs.

What can governments do to What can governments do to protect its banks?protect its banks?

As long as its banks’ deposits and short-term liabilitiesAs long as its banks’ deposits and short-term liabilities are denominated in domestic currencyare denominated in domestic currency, a government , a government can always issue enough currency to avert a run.can always issue enough currency to avert a run.

If the government is credible, the run is likely to be If the government is credible, the run is likely to be averted. If the bank is fundamentally sound, it repays its averted. If the bank is fundamentally sound, it repays its loan (at a penalty rate). The government makes a profit.loan (at a penalty rate). The government makes a profit.

There is no consequent inflation; the fiscal situation is There is no consequent inflation; the fiscal situation is improved.improved.

If the bank turns out to be insolvent, either the attempted If the bank turns out to be insolvent, either the attempted rescue is inflationary or the taxpayers foot the bill.rescue is inflationary or the taxpayers foot the bill.

But …But …

The Icelandic banker sector had assets The Icelandic banker sector had assets and liabilities that dwarfed Icelandic GDP. and liabilities that dwarfed Icelandic GDP.

In Q1 2008, total assets of the three main In Q1 2008, total assets of the three main banks were almost banks were almost eleven eleven times times estimated 2007 GDP.estimated 2007 GDP.

Only about 21 percent of the assets and Only about 21 percent of the assets and 15 percent of the liabilities were 15 percent of the liabilities were denominated in kronur.denominated in kronur.

If there had been a run on foreign-currency If there had been a run on foreign-currency liabilities, Iceland had no foreign-currency lender of liabilities, Iceland had no foreign-currency lender of

last resortlast resort

The central bank was stunningly candid:The central bank was stunningly candid:

““Critics have asserted that Icelandic banks Critics have asserted that Icelandic banks have grown too large. This might be true if have grown too large. This might be true if a major crisis were imminent and the a major crisis were imminent and the Icelandic government were forced to Icelandic government were forced to resolve a critical situation affecting resolve a critical situation affecting banking operations both in Iceland and banking operations both in Iceland and abroad.”abroad.”

Financial Stability May 2008

Iceland was small and vulnerableIceland was small and vulnerable

Rumours were that Rumours were that traders from a now traders from a now defunct investment bank defunct investment bank met in the bar of the 101 met in the bar of the 101 Hotel in Reykjavik and Hotel in Reykjavik and planned a crisis, using planned a crisis, using ‘trash and trade’ ‘trash and trade’ strategies: shorting the strategies: shorting the króna or the stock or debt króna or the stock or debt of one or more of the of one or more of the Icelandic banks, while Icelandic banks, while spreading unfavourable spreading unfavourable rumoursrumours

Some of what happened afterSome of what happened after On 15 Sep 2008 Lehman Brothers sought On 15 Sep 2008 Lehman Brothers sought

Chapter 11 bankruptcy protection.Chapter 11 bankruptcy protection. Glitnir had a sizable amount of debt set to Glitnir had a sizable amount of debt set to

mature in mid October. It was unable to raise the mature in mid October. It was unable to raise the money to pay the debt and the Icelandic money to pay the debt and the Icelandic authorities lacked the foreign exchange to make authorities lacked the foreign exchange to make Glitnir a sizable enough loan. Glitnir a sizable enough loan.

On 29 Sep it was announced that the bank On 29 Sep it was announced that the bank would be nationalised.would be nationalised.

Question for thought: If a domestic company Question for thought: If a domestic company defaults, is this a good time to nationalise it?defaults, is this a good time to nationalise it?

Landsbanki was nextLandsbanki was next

On 3 Oct British depositors staged a run On 3 Oct British depositors staged a run on their Icesave accounts in Landsbanki.on their Icesave accounts in Landsbanki.

On 7 Oct Landsbanki was placed in On 7 Oct Landsbanki was placed in receivership.receivership.

The UK government invoked the Anti-The UK government invoked the Anti-terrorism Act of 2001 to freeze the assets terrorism Act of 2001 to freeze the assets of of Landsbanki in the United Kingdom. of of Landsbanki in the United Kingdom.

Nationalisation plans fortunately Nationalisation plans fortunately abandoned, Glitnir followed on 8 Oct.abandoned, Glitnir followed on 8 Oct.

And then KaupthingAnd then Kaupthing … …

After what must have been an acrimonious After what must have been an acrimonious discussion with the Icelandic authorities, discussion with the Icelandic authorities, the British authorities seized the assets of the British authorities seized the assets of Kaupthing’s UK subsidiary and transferred Kaupthing’s UK subsidiary and transferred them to the Dutch bank, ING.them to the Dutch bank, ING.

This ensured the collapse of Kaupthing on This ensured the collapse of Kaupthing on 9 Oct.9 Oct.

Kaupthing Kaupthing mightmight have been saved but for have been saved but for the UK government.the UK government.

The exchange rateThe exchange rate

On 6 Oct the government attempted to peg the On 6 Oct the government attempted to peg the krkróóna at 131 krna at 131 kroonur to the euro.nur to the euro.

On 8 Oct the peg was abandoned and by 9 Oct On 8 Oct the peg was abandoned and by 9 Oct the exchange rate had fallen to 340. The demise the exchange rate had fallen to 340. The demise of the last of the three big Icelandic banks on of the last of the three big Icelandic banks on that day caused trade to collapse. Capital that day caused trade to collapse. Capital controls were introduced.controls were introduced.

On 28 Oct the central bank raised its policy rate On 28 Oct the central bank raised its policy rate to 18 percent and, following this, a small amount to 18 percent and, following this, a small amount of commercial trade in the krof commercial trade in the króóna outside Iceland na outside Iceland recommenced. The exchange rate was 240.recommenced. The exchange rate was 240.

IMF LoanIMF Loan

On 19 Nov the IMF approved a two-year On 19 Nov the IMF approved a two-year Stand-By Arrangement of about $2.1 Stand-By Arrangement of about $2.1 billion for Iceland. About $827 is available billion for Iceland. About $827 is available right away and the rest in eight equal right away and the rest in eight equal tranches, subject to quarterly reviews.tranches, subject to quarterly reviews.

The IMF says that it is essential that the The IMF says that it is essential that the government not take on the losses of the government not take on the losses of the banks, other than paying guaranteed banks, other than paying guaranteed deposits. deposits.

Icelandic EconomyIcelandic Economy

““Economic developments are shrouded in Economic developments are shrouded in uncertainty at present … ” (central bank)uncertainty at present … ” (central bank)

Icelandic GDP may contract by ten Icelandic GDP may contract by ten percent in 2009.percent in 2009.

Private domestic consumption will Private domestic consumption will probably fall by about 25 percent in 2009.probably fall by about 25 percent in 2009.

Could Iceland have been saved?Could Iceland have been saved?

We estimated that they would have needed $10 We estimated that they would have needed $10 billion to stave off a collapse. billion to stave off a collapse.

This would only have been worth it if the crisis is This would only have been worth it if the crisis is a liquidity crisis and not a solvency crisis.a liquidity crisis and not a solvency crisis.

Iceland had $2.6 billion in reserves and $2.3 Iceland had $2.6 billion in reserves and $2.3 billion in Nordic swap lines. It could have tried to billion in Nordic swap lines. It could have tried to set up swap lines with the US, the UK and the set up swap lines with the US, the UK and the ECB. It could have borrowed from the markets ECB. It could have borrowed from the markets using its energy resources as collateral. It could using its energy resources as collateral. It could have gone to the IMF: the IMF had about $200 have gone to the IMF: the IMF had about $200 billion to lend and was desperate for borrowers. billion to lend and was desperate for borrowers.

Iceland should have joined the EMUIceland should have joined the EMU

Its banks would have been protected from Its banks would have been protected from liquidity crises; the ECB would be the lender of liquidity crises; the ECB would be the lender of last resort.last resort.

Making monetary policy in Iceland is way too Making monetary policy in Iceland is way too difficult. It is not possible both to target the price difficult. It is not possible both to target the price level and ensure a stable exchange rate.level and ensure a stable exchange rate.

Smaller transactions costs and households Smaller transactions costs and households would no longer need to be foreign exchange would no longer need to be foreign exchange speculators.speculators.

Should Iceland have had a reserve fund?Should Iceland have had a reserve fund?

The assets would have had to be held in The assets would have had to be held in the most liquid possible form. the most liquid possible form.

By effectively undoing the maturity- and By effectively undoing the maturity- and liquidity transformation of the banking liquidity transformation of the banking sector, this large investment in liquid sector, this large investment in liquid assets would have destroyed the social assets would have destroyed the social profitability of Iceland’s international profitability of Iceland’s international banking activities. banking activities.

Were the banks solvent?Were the banks solvent?

Richard Portes (Richard Portes (FTFT, 13 Oct 2008) says, “Lilke , 13 Oct 2008) says, “Lilke fellow Icelandic banks Landsbanki and fellow Icelandic banks Landsbanki and Kaupthing, Glitnir was solvent. All posted good Kaupthing, Glitnir was solvent. All posted good first-half results, all had healthy capital adequacy first-half results, all had healthy capital adequacy ratios, and their dependence on market funding ratios, and their dependence on market funding was no greater than their peers’. None held any was no greater than their peers’. None held any toxic securities.”toxic securities.”

This is likely to be optimistic! But, we still are not This is likely to be optimistic! But, we still are not completely sure.completely sure.

We never had any idea.We never had any idea.

We read their financial statements We read their financial statements carefully, but they don’t contain enough carefully, but they don’t contain enough information to tell.information to tell.

We suspect that the Icelandic supervisors We suspect that the Icelandic supervisors were not sure.were not sure.

Mistakes the UK madeMistakes the UK made

The thuggish behaviour of the UK government: The thuggish behaviour of the UK government: demonstrating that it cannot be trusted not to demonstrating that it cannot be trusted not to misuse anti-terrorism legislation. (Obviously just misuse anti-terrorism legislation. (Obviously just warming up to go after the Opposition … )warming up to go after the Opposition … )

The willingness of households, the government, The willingness of households, the government, even the Cat Protection League, to put their even the Cat Protection League, to put their savings into the banks of a small far away savings into the banks of a small far away country that they have made no effort to learn country that they have made no effort to learn anything about.anything about.

A UK regulatory failure?A UK regulatory failure?

Under the Under the attractive nuisance doctrineattractive nuisance doctrine a a home owner may be held liable if a child home owner may be held liable if a child drown in his unfenced swimming pool.drown in his unfenced swimming pool.

The UK government should have warned The UK government should have warned against risky investments.against risky investments.

To the Icelandic banks, the British public To the Icelandic banks, the British public was like an unfenced and lovely blue was like an unfenced and lovely blue swimming pool on a hot day …swimming pool on a hot day …

And, it wasn’t just the Cats And, it wasn’t just the Cats Protection league …Protection league …

““In autumn 2008, five counterparties defaulted In autumn 2008, five counterparties defaulted on refinancing operations undertaken by the on refinancing operations undertaken by the Eurosystem, namely Lehman Brothers Eurosystem, namely Lehman Brothers Bankhaus AG, Bankhaus AG, three subsidiaries of Icelandic three subsidiaries of Icelandic banksbanks, and Indover NL.” , and Indover NL.”

““The total nominal value of the Eurosystems The total nominal value of the Eurosystems claims on these credit institutions amounted to claims on these credit institutions amounted to some E10.3 billion at end-2008. The monetary some E10.3 billion at end-2008. The monetary policy operations in question were executed on policy operations in question were executed on behalf of the Eurosystem by three NCBs, namely behalf of the Eurosystem by three NCBs, namely the Deutsche Bundesbank, the Banque centrale the Deutsche Bundesbank, the Banque centrale du Luxembourg and de Nederlandsche Bank.” du Luxembourg and de Nederlandsche Bank.”

I’d rather they’d said it was a I’d rather they’d said it was a horrible mistake …horrible mistake …

““The Governing Council has confirmed The Governing Council has confirmed that the monetary policy operations in that the monetary policy operations in question were carried out by these NCBs question were carried out by these NCBs in full compliance with the Eurosystem's in full compliance with the Eurosystem's rules and procedures, and that these rules and procedures, and that these NCBs had taken all the necessary NCBs had taken all the necessary precautions, in full consultation with the precautions, in full consultation with the ECB and the other NCBs, to maximise the ECB and the other NCBs, to maximise the recovery of funds from the collateral held.”recovery of funds from the collateral held.”

What collateral did What collateral did they give the ECB?they give the ECB?

"The counterparties in question submitted "The counterparties in question submitted eligible collateral in compliance with the eligible collateral in compliance with the Eurosystem's rules and procedures. This Eurosystem's rules and procedures. This collateral, is of limited liquidity under the present collateral, is of limited liquidity under the present exceptional market conditions and some of the exceptional market conditions and some of the ABSs need to be restructured in order to allow ABSs need to be restructured in order to allow for efficient recovery. Under current market for efficient recovery. Under current market conditions, it is difficult to assess when the conditions, it is difficult to assess when the eventual resolution will be achieved by the eventual resolution will be achieved by the Eurosystem.”Eurosystem.”

We don’t know how the ECB valued their We don’t know how the ECB valued their collateral: it won’t tell us.collateral: it won’t tell us.

Lesson for All: A country can be Lesson for All: A country can be OVERBANKEDOVERBANKED

It is It is highly undesirablehighly undesirable for a small for a small country to have both its own currency and country to have both its own currency and a large, internationally exposed banking a large, internationally exposed banking sector.sector.

A country that is a member of the euro A country that is a member of the euro zone will be protected from liquidity zone will be protected from liquidity problems, but may not have the capacity problems, but may not have the capacity to recapitalise the banking system in the to recapitalise the banking system in the event of a solvency crisis.event of a solvency crisis.

Who else should we be worried Who else should we be worried about?about?

Switzerland has a bank-asset-to-GDP ratio of Switzerland has a bank-asset-to-GDP ratio of seven percent, down from over nine percent in seven percent, down from over nine percent in 2006.2006.

Swiss banks were among the most leveraged in Swiss banks were among the most leveraged in the world.the world.

They had significant exposure to the US sub-They had significant exposure to the US sub-prime mortgage market.prime mortgage market.

Swiss authorities reacted faster than Icelandic Swiss authorities reacted faster than Icelandic ones.ones.

There was a perception that the world would There was a perception that the world would have more anxious to help save Swiss banks.have more anxious to help save Swiss banks.

Some before-the-crisis total bank Some before-the-crisis total bank asset to GDP ratiosasset to GDP ratios

0

4

8

12

Iceland Switzerland Belgium Netherlands UK

OverbankedOverbanked

I have used overbanked to refer to a situation I have used overbanked to refer to a situation where the banking sector is too large.where the banking sector is too large.

More typically, it refers to a scenario where there More typically, it refers to a scenario where there are too many banks and each is too small to are too many banks and each is too small to earn a satisfactory rate of return.earn a satisfactory rate of return.

Currently, in countries where the banking sector Currently, in countries where the banking sector is too large it is because just a few banks grew is too large it is because just a few banks grew rapidly.rapidly.

What can be done to keep banks What can be done to keep banks from becoming too big?from becoming too big?

The G-30 have suggested that larger banks The G-30 have suggested that larger banks should be restricted from certain activities and should be restricted from certain activities and should be subject to greater supervision and should be subject to greater supervision and regulation.regulation.

But regulators and supervisors tend to be But regulators and supervisors tend to be captured by the industry that they tend and the captured by the industry that they tend and the bankers always seem to be a step ahead of their bankers always seem to be a step ahead of their minders. minders.

Willem Buiter’s suggestion, endorsed by the UK Willem Buiter’s suggestion, endorsed by the UK FSA: Tax size. Make the minimum allowable FSA: Tax size. Make the minimum allowable ratio of capital to assets increasing in bank size.ratio of capital to assets increasing in bank size.

A country can be too small to A country can be too small to have its own currencyhave its own currency

Iceland has ministries of business affairs, Iceland has ministries of business affairs, communications, science, culture, environment, communications, science, culture, environment, finance, fisheries, agriculture, foreign affairs, finance, fisheries, agriculture, foreign affairs, health, industry, tourism, justice, ecclesiastical health, industry, tourism, justice, ecclesiastical affairs, social affairs, social security: if they can affairs, social affairs, social security: if they can outsource monetary policy, maybe this is a good outsource monetary policy, maybe this is a good idea!idea!

Difficult to find qualified senior officialsDifficult to find qualified senior officials Heavy burdens placed on senior officialsHeavy burdens placed on senior officials

The multi-talented David OddsonThe multi-talented David Oddson

Appointed chairman Appointed chairman of the board of of the board of directors of the directors of the Icelandic central bank Icelandic central bank in October 2005in October 2005

Experience:Experience:

Theatre directorTheatre director XXComedy radio Comedy radio show directorshow director

XX

Political Political commentatorcommentator

XX

Foreign ministerForeign minister XXPrime ministerPrime minister XXEconomistEconomist

Since 1990, 33 new countries Since 1990, 33 new countries have formedhave formed

Many are very smallMany are very small East Timor, Kosovo, Macedonia, Marshall East Timor, Kosovo, Macedonia, Marshall

Islands, Montenegro, Namibia, Palau and Islands, Montenegro, Namibia, Palau and Slovenia, for example, all have Slovenia, for example, all have populations near or below 2 millionpopulations near or below 2 million