Iceland Recovering – No Bank Bailouts, No Euro

Friday, December 10, 2010
By Paul Martin

Iceland offers risky temptation for Ireland as recession ends

Iceland has finally emerged from deep recession after allowing its currency to plunge and washing its hands of private bank debt, prompting an intense the debate over whether Ireland might suffer less damage if adopted the same strategy.

By Ambrose Evans-Pritchard
TelegraphUK
08 Dec 2010

The Nordic economy grew at 1.2pc in the third quarter and looks poised to rebound next year. It ends a gruelling slump caused largely by the “New Viking” antics of Landsbanki, Glitnir and Kaupthing, the trio of lenders that brought down Iceland’s financial system in September 2008.

The economies of the two “over-banked” countries have both contracted by around 11pc of GDP, but Iceland has achieved it with inflation that devalues debt, while Ireland has done it under an EMU deflation regime that raises the burden of debt.

This has led to vastly different debt dynamics as they enter Year III of the drama. Iceland’s budget deficit will be 6.3pc this year, and soon in surplus: Ireland’s will be 12pc (32pc with bank bail-outs) and not much better next year.

The pain has been distributed very differently. Irish unemployment has reached 14.1pc, and is still rising. Iceland’s peaked at 9.7pc and has since fallen to 7.3pc.

The International Monetary Fund said Iceland has turned the corner, praising Reykjavik for safeguarding its “valued Nordic social welfare model”.

“In the event, the recession has proved shallower than expected, and Iceland’s growth decline of about minus 7pc in 2009 compares favorably against other countries hard hit by the crisis,” said Mark Flanigan, the IMF’s mission chief for the country.

The Rest…HERE

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