It’s funny how Iceland’s economic success has been almost completely ignored by the presstitutes. In Ireland, which started out on a similar route to Iceland, has an almost complete media blackout of the Iceland success story. In any debate of bank debt in Ireland, at no point has Iceland’s decision to renege on its banks odious debts ever mentioned. This is in direct contrast to what the Irish government did. In fact, refusing to give the Irish a referendum, unlike Iceland, show
s Democracy doesn’t exist. Maybe it should be called Dumb-ocracy, because the electorate are kept as dumb as possible, like mushrooms, kept in the dark and fed shit.
As regards to the eurozone, Iceland points the way to growth and how a small nation can actually survive when odious debt is removed. It takes a brave move from its people to overrule the politicians and stand up to the bankers. How many times have we heard in the last year from eurozone politicians, who admit that the euro was ill-conceived, only to move further into the danger zone by proposing a fiscal union as the final solution to all of europe’s problems. If they got it wrong originally with the euro, why listen to politicians about any economic decision, because clearly they are making the wrong decisions in Europe.
Is it any reason then we hear nothing of Iceland’s economic recovery, because the politicians don’t want anyone to know, that life can be better outside the euro.
In 2008, Iceland was the first casualty of the financial crisis that has since primed the euro zone for another economic disaster: Greece is edging toward a cataclysmic exit from the euro, Spain is racked by a teetering banking system, and German politicians are squabbling over how to hold it all together.
But Iceland is growing. Unemployment has eased. Emigration has slowed.
Iceland has a significant advantage over stressed euro-zone countries—a currency that could be devalued. That has turned its trade deficit into a surplus and smoothed its recovery.
Iceland has control over its fishing industry and is not limited to fish quotas that other european countries have to work with. Business within the fishing industry is booming and looking for workers.
So brisk is the fish business that Mr. Palsson’s factory draws Polish workers to this island off an island, a heart-shaped dollop of volcanic rock five miles from Iceland’s south coast.
“Every house is full because we can offer so many jobs,” said Mr. Palsson, 37 years old. On his humming factory floor, cod whip through machines that lop off heads and slice out bones. Rows of workers in Smurf-blue smocks lean over illuminated tables to cut the filets.
Iceland—with its own currency, its own central bank, its own monetary policy, its own decision-making and its own rules—had policy options that euro-zone nations can only fantasize about. Its successes provide a vivid lesson in what euro countries gave up when they joined the monetary union. And, perhaps, a taste of what might be possible should they leave.
So what happened and how did Iceland recover?
Iceland fell hard in 2008. Its engorged banking system sunk and unemployment soared. The government was jeered out of office by dispirited voters in angry street protests. Young people packed their bags. As in the euro zone, the International Monetary Fund parachuted in with a bailout.
Its currency devalued by half. That boosted exports, like Mr. Palsson’s fish, and trimmed costly imports, like cars. The weakened krona was hard on homeowners who borrowed in foreign currency, but Iceland’s judges and policy makers orchestrated mortgage relief. Expensive foreign goods also ignited inflation. Consumer prices have risen 26% since 2008.
That rescue, in turn, weighed on the financial system. But unlike Ireland, for example, Iceland let its banks fail and made foreign creditors, not Icelandic taxpayers, largely responsible for covering losses.
Iceland also imposed draconian capital controls—anathema to the European Union doctrine of open financial borders—that have warded off the terrifying capital and credit flights that hit Greece, Ireland and Portugal, and now test Spain and Italy.
And instead of rushing into the sort of spending cuts that have ravaged Greece and Spain, Iceland delayed austerity. Initially, the country even increased social-welfare payments to its poorest citizens, whose continued spending helped cushion the economy.
Difference between Iceland and Greece.
Exiting the euro would be traumatic for Greece, even if it could benefit from devaluation. Iceland’s open economy is much more geared toward trade; Greece’s €52 billion in exports last year amounted to 24% of its gross domestic product. Iceland’s exports reached 59% of GDP. Icelanders heat and power their homes with geothermal energy; the Greeks import their energy and would suffer a huge price shock after a devaluation.
Earlier this month, Iceland sold $1 billion in 10-year bonds at 5.875% interest. That is a lower rate than what Greece, Ireland or Portugal would pay, if they had access to financial markets at all. In March, Iceland began repaying its IMF loans ahead of schedule.
Adjust imbalances internally (austerity) or through currency devaluation?
Righting imbalances is hard inside the euro zone. There, the policy is so-called internal devaluation, a euphemism for making populations poorer. In theory, pushing down wages makes export industries more competitive with foreign competitors. In practice, it is difficult to lower wages without hurting the domestic economy.
In Ireland, the most successful of the euro zone’s bailed-out countries, the policy has spurred a revival in exports but at the cost of high unemployment and lower domestic consumption. In Iceland, by contrast, the devalued currency forces residents to buy less from abroad and shift their purchasing home.
“We are seeing in Greece and in Southern Europe how painful it is to adjust through the labor market,” said Tryggvi Thor Herbertsson, a member of parliament for the conservative opposition party. “To adjust through the currency,” he said, “is so much less painful.”
Common sense tells us that the euro€ has been an absolute DISASTER, its time to return to our own currencies and take back control.
Source: Wall Street Journal