Iceland are on the up and up, yet they are well-known for having very serious problems during the 2008 financial crises. How did the manage to turn things around – especially with much of the rest of the world struggling to find an answer?
Simply put, they helped their people and punished the bankers. The rest of the world bailed out the banks and are punishing their people (austerity, higher taxes etc). Rather than giving bailouts and bonuses to their bankers – and thereby encouraging them to carry on more or less as before. Iceland took legal action against the culprits and gave a very clear message that the banks needed to behave very differently. They helped their people by applying measures to reduce home equity issues and helping reduce personal debt.
Few countries blew up more spectacularly than Iceland in the 2008 financial crisis. The local stock market plunged 90 percent; unemployment rose ninefold; inflation shot to more than 18 percent; the country’s biggest banks all failed.
Since then, Iceland has turned in a pretty impressive performance. It has repaid International Monetary Fund rescue loans ahead of schedule. Growth this year will be about 2.5 percent, better than most developed economies. Unemployment has fallen by half. In February, Fitch Ratings restored the country’s investment-grade status, approvingly citing its “unorthodox crisis policy response.”
You’ll notice that the Bloomberg reports Iceland’s “unorthodox crisis policy response.” Orthodox means, ‘Conforming to what is accepted as right or true’. In reality what can be more orthodox than helping out the innocent and making those responsible for the problem face up to it? When injustice becomes orthodox, and injustice becomes unorthodox, then things seriously need to change. Iceland has shown that not only is this the right moral thing to do is it is also the right financial thing to do.
While I am not so sure that blaming and shaming is really the answer to the problem; implicitly rewarding bad behaviour by the bankers not the answer either. Somewhere there is a middle ground and it seem to me that Iceland have got much closer to it than most. They have gone the other way to most countries, and have got into blaming and shaming, but at least that way actually works for the majority!
There is a way out of the financial crises. We need to choose politicians who will do the right thing for the majority and not those who protect an elite minority at the expense of wider society. We need to give our voice to an orthodox view based on protecting the innocent and supporting the wider long-term good.
There are more details on Zerohedge: Iceland’s Success Story
Well done Iceland! More power to ’em…