Once a joke, Iceland may get the last laugh


The experts have started writing off Ireland, with its shattered banks, flatlined economy and disillusioned populace, as a long-term basket-case with dim recovery prospects. Maybe they should take a closer look at what has been happening in another small country written off for dead not so many months ago.

That would be Iceland, which has just posted economic growth of 1.2 per cent in the latest quarter. That’s pretty feeble, even by European standards. But it comes after nearly two years of contraction. And to bring even more Christmas cheer to its resilient but still suffering citizenry, inflation fell last month to 2.6 per cent from 3.3 per cent in October, the lowest level since 2004. And the benchmark interest rate has dropped to a more manageable 4.5 per cent.

At the height of the global financial crisis that destroyed its massively overleveraged banks, shredded its economy and drove the government to the brink of bankruptcy, Iceland’s official interest rate soared to 18 per cent.

So the Irish can take heart. It is possible to force international creditors to eat some losses, restructure debt and survive the destruction wrought by greedy, short-sighted bankers, foolish governments and even inept central banks.

Of course, Icelanders had one small advantage over the euro zone’s basket cases – their own currency and an independent monetary policy. When the krona collapsed, plenty of Icelanders moaned that they should have opted to join the EU long ago. But capital controls revived their battered currency, which has climbed more than 20 per cent against the euro in the past year. As much of their trade is conducted in euros, this has helped fatten export gains, which have underpinned the economic recovery.

Like Ireland and Greece, Iceland had to get a bailout to survive the worst of the storms. But unlike the Europeans, Iceland did not pour good money after bad in a futile effort to rescue its zombie banks. Iceland simply pulled the plug on banks that had no means of saving themselves. Bank bondholders will be lucky to get 25 cents back on the dollar. But that’s the pain investors must bear for buying a story that was always too good to be true.

And it’s the same path the Europeans will eventually have to follow, if they ever want to get out of their current predicament.

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5 Responses

  1. Let’s hope we are going to see the end of Geithner, Bernanke and Larry Summers–they all need to go. F%^& the mega banks. Let them fail. I see Bernie Madoff’s son has committed suicide, which was undoubtedly related to his father’s crimes. The banksters who created this nightmare in collusion with the federal government need to go to jail. Our economy is never going to recover if we let them continue to fleece us. We need our AG’s to step up to the plate and prosecute these people for fraud, forgery, extortion and the related illness and death caused by their greed.

  2. Everyone who knew what they were talking about advised Congress to let the banks fail and clean out the system.

    The politicians and president are so thoroughly owned by Wall Street, they did the exact opposite and executed the largest wealth transfer from the poor to the rich in history.

    As long as Wall Street bankers are in high government positions and men like Bernanke and Geithner are in charge of monetary policy, the wealth will continue to be transferred to their member banks.

    Good luck to Ron Paul and his endeavor to put a powerful criminal syndicate out of business.

  3. Iceland didn’t need to get their head shaved, or a crewcut. They did it so they could take a little off the back, off the sides, trim it up here and there.
    It grew back. The losers were the ones that caused it. The losers paid.

  4. Wow Iceland lost McDonalds,seems to me thier lucky?Who needs more junk food?

  5. Feeding zombies is ALWAYS a very bad idea.. BAC C GS etc. all need to die so that the country can recover.

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