While eurozone countries such as Greece and Ireland etc embrace austerity and repay bondholders, Iceland who told the banks to f&*K off have now been rewarded by Fitch Ratings agency for correctly doing the right thing. It now has reached investment grade BBB and has successfully exited its IMF programme. Remember in October, the country held a conference to show the lessons learnt. They are now experiencing a lowering of unemployment figures and economic growth. In fact even the IMF had this to say

As the first country to experience the full force of the global economic crisis, Iceland is now held up as an example by some of how to overcome deep economic dislocation without undoing the social fabric.

Ambrose Evans Pritchard writes the following

Fitch has upgraded the country to investment grade BBB – with stable outlook, expecting government debt to peak at 100pc of GDP.

The OECD’s latest forecast said growth will be 2.4pc this year, after 2.9pc in 2011.

Unemployment will fall from 7pc last year to 6.1pc this year and then 5.3pc in 2013.

The current account deficit was 11.2pc in 2010. It will shrink to 3.4pc this year, and will be almost disappear next year.

The strategy of devaluation behind capital controls has rescued the economy. (Yes, I know there is a dispute about exchange controls, but that is a detail.) The country has held its Nordic welfare together and preserved social cohesion. It is slowly prospering again, though private debt weighs heavy.

and according to Fitch themselves

Iceland has been among the front runners on fiscal consolidation in advanced economies: the primary deficit has contracted from 6.5% of GDP in 2009 to 0.5% in 2011 and Iceland appears to be on track to attain primary fiscal surpluses from 2012 and headline surpluses from 2014. Fitch believes that gross general government debt may have peaked at around 100% of GDP in 2011 (excluding potential Icesave liabilities); net debt is significantly lower at around 65% of GDP, reflecting appreciable deposits at the Central Bank (CBI). Barring further shocks, Iceland should see a sustained reduction in its public debt/GDP ratio from 2012, assuming economic recovery continues and the government adheres to its medium term fiscal targets. Ample general government deposits at the CBI and record foreign exchange reserves.

However, it’s not all rosy for Iceland. There is still an EFTA court ruling on Icesave and this could raise public debt by 6%-13% of GDP. Capital control have blocked the repatriation of some deposits. Household debt exceeds 200% of disposable income and corporate debt 210% of GDP. But as Iceland struggles, it’s certainly on the right path and showing the way. The moral of the story is “tell the Banks to F**K OFF”.        😉

 

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