Go read this interview with the President of Iceland, Ólafur Ragnar Grímsson.
As you may recall, their economy cratered a few years ago, brought on by the collapse of their banks (sound familiar?). But instead of bailing out their financial institutions, they let them go broke. Then the country stood up to demands from world banks that the country assume the debts of their failed banks and enact extreme austerity measures — or else. It was close to blackmail, but the country said no. And … nothing happened. In fact, their economy is recovering faster than the rest of Europe (and faster than the US).
It is a good and instructive read. Nothing radical at all, and is mostly common sense:
As everybody knows now, we did not pump public money into the failed banks. We treated them like private companies that went bankrupt, and we let them fail. Some people say we did it because we didn’t have any other option, there is clearly something in that argument, but it does not change the fact that it turned out to be a wise move for whatever reason. Whereas in many other countries, the prevailing orthodoxy is you pump public money into banks and you make taxpayers responsible for the banks in the long run, and somehow treat the banks as if they are holier institutions in the economy than manufacturing companies, commercial companies, IT companies, or whatever. And I have never really understood the argument: why a private bank or financial fund is somehow holier for the well being and future of the economy than the industrial sector, the IT sector, the creative sector, or the manufacturing sector.
So if you add all of this together and throw in the devaluation of the currency as well, it’s clear that what some people have called the Icelandic model includes a number of measures and approaches that have not been adopted in other countries. On the contrary, it includes some methods in the process that go directly against what has been adopted in other countries. But the outcome is the Icelandic economy is recovering faster and more effectively than any other economy, including the British and the American that suffered from a big financial crisis in 2008.
So why aren’t other countries learning from what they did? Grímsson provides the answer in the interview, when he warns against countries becoming addicted to their financial sector.
In responding to the crisis, Iceland treated it “not only as an economic challenge but also as a fundamental social, political, and even a judicial challenge.” Instead of bailing out rich investors and foreign banks, using money they would have to take away from providing services for the poor, they protected social and health services. In other words, they put their country and its people ahead of the banks. Is that really so hard to do?
10 Comments
“In other words, they put their country and its people ahead of the banks. Is that really so hard to do?”
Yes. It’s not that banks are holy but rather people with money in banks are holy. It’s creditors who are being protected not bank employees. In the case of Iceland, most of the bank debt was owed to foreigners, which made the decision a lot easier.
it’s a nice idea, but I wouldn’t go so far as to say Iceland has/had as much of a financial stake in the global market.
OH, you probably haven’t read much about what happened in Iceland. They were a banking powerhouse with significant investments around the world, before the collapse. Your statement is almost as bad as saying that Switzerland doesn’t have much of a stake in the global market because they are a small country.
If you are interested, start with https://www.politicalirony.com/2011/08/24/why-iceland-is-not-in-the-news-anymore/ and http://grapevine.is/Features/ReadArticle/A-Deconstruction-of-Icelands-Ongoing-Revolution
Old news, but definitely something that should be brought up more and more. Our media didn’t give iceland very much coverage…I wonder why?
Argentina is in a similar position right now, with a US court ordering them to pay back billions in loans to US banks within a few weeks. Although the Argentine debt crisis may be more comparable to Greece, actually.
The banks were originally government run, but were privatized. The best part was that the women took over and started handing out indictments to the former president and heads of the banks.
To the women of Iceland’s credit, they avoided becoming a Plutocracy.
Well, the taxpayers of the U.S. are getting all but about $50 billion so from the original TARP. So I’d say that the TARP is possibly a good investment. But the people of the U.S. themselves never got bailed out and many lost their homes, their savings, their pensions, while banks not only recovered but seem to be doing better than ever.
IK, I love your blog and your follow up information is always welcome. I do have to say it’s quite insulting to say I am simply basing my opinions on the size of a country. I’ll admit I am not fully versed with the story that transpired in Iceland, but I am willing to look at your link.
OH, sorry. No insult intended. It is my fault for not mentioning how intertwined such a small country as Iceland was in international banking before talking about how they got themselves out of it.
And they are a very small country, both in area (103,000 sq km) and in population (319,000 — fewer than Ann Arbor, MI).
No harm IK. Keep up the good work.
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