Whatever Happened to Iceland: The Poster-Child of National Financial Ruin?

Four years after Iceland let its banks fail by refusing to underwrite US$85billion in debt representing six times the country’s gross domestic product; the country’s economy has grown by 3% this year and expects a budget surplus by 2013. In addition, compared to other European countries affected by the 2008 financial crisis unemployment in Iceland is at 5.8%. In Ireland the rate is 15%; Greece 15% and Portugal 12.4%

5th Term for President

Icelanders have also this month re-elected Olafur Grimsson for a record fifth term as President of the 320,000 person Icelandic Republic; making him the longest serving head of state in the country’s history.

President Grimsson is famous for twice vetoing his government’s plans to use taxpayers’ money to bailout the country’s privately owned debt ridden banks, three of which crashed in the space of seven days at the height of the global financial meltdown.

Igniting the anger of both Great Britain and the Netherlands he held two referenda where the people of Iceland backed his decision to let Iceland’s private banks default. The decision is now before the international courts but in the meantime President Grimsson’s recovery model has bucked the trend and is touted by people like Paul Krugman as a model for the European Union, a grouping with whom Iceland is now pursuing membership.

5 Key Icelandic Insights

Recently President Grimsson was interviewed by Business Insider. http://bellacaledonia.org.uk/2012/04/16/icelands-president-explains-why-the-world-needs-to-rethink-its-addiction-to-finance/

Here are five points he makes about the recession and why we need to rethink our addiction to finance.

1. Recession caused profound social, political and judicial challenges

“One of the reasons Iceland has come out of this crisis earlier and more effectively than anyone could have expected, even ourselves, is that early on, we approached this not just with economic and financial challenge, but also attempted to deal with the profound social, political, and even judicial challenges, which the collapse of the bank brought about.”

2. The Financial Sector carries grave political and social responsibility

“How the financial system could pose a fundamental threat to the political and democratic framework of Iceland illustrates the grave political and social responsibility which the market and the financial sector carries, because if a collapse in the financial sector can bring one of the most stable and secure democracies and political structures to his knees, as happened in Iceland, what could it do in countries that have less stable democratic and political history? “

3. Private Banks not ‘Holier than Thou’

“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.”

4. Banking Collapse Freed Up the Best and the Brightest

“When the Icelandic banks collapsed, what we saw was that a great number of companies in these creative sectors, IT, high-tech, and all of those, who had the large growth potential in the previous years, but had not been able to realize it because they couldn’t get the people, due to the fact that the banks were buying up all the best engineers and mathematicians and computer scientists, suddenly had the pool of talent available to them. And within six months, all these people who came out of the banks with these qualifications had been hired. So since then you have seen a great growth period in the Icelandic IT sector, the high-tech sector, the manufacturing sector, because they could suddenly get the engineers, the mathematicians, the computer scientists.”

5. Democracy vs. the Financial Markets

“It was a complicated issue. But once I had analyzed every aspect of it, it boiled to the fundamental choice of the interest of the financial market on one hand, and the democratic will of the people on the other, and rarely in history — but it does happen — do we come to such crossroads that we are forced to choose. And my answer was clearly, not only with respect to the democratic structure of Iceland, but also with respect to Europe’s contribution to the world. What is our primary legacy to countries and nations in modern times? Is the European democracy the right of the people? Capitalistic financial markets can exist in many other parts of the world, even without democracy. So in my opinion, Europe is and should be more about democracy than about financial markets.”

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