The Slog: The Awkward Truth About Iceland that the EU Refuses to Acknowledge

Springtime for Iceland and Germany, winter for Athens and Spain

In 2001, the banks were deregulated in Iceland. This set the stage for banks to upload debts when foreign companies were accumulated. A major crisis unfolded when banks became unable to refinance their debts.The debts were bonkers, but the advisers all said “Nooooo, nothing to worry about, just offer very high savings rates.” However, it is a fact that the three major banks held foreign debt in excess of €50 billion, or about €160,000 per Icelandic resident.

But a funny thing happened after the Icelandic fiscal collapse of 2008. The Government let most of the banks fail, told the bondholders to whistle for their sovereign debt, didn’t sell any assets, ringfenced the social security budgets, and hunkered down to rebuild the country. The slump was arrested by late 2010, and growth was under way again by mid 2011. One sign of the success of the Icelandic efforts is the fact that the government was successfully able to raise $1 billion with a bond issue on 9 June 2011.

Today, Iceland is regarded as one of Europe’s recovery success stories. It has had two years of economic growth. Unemployment is down to 6.3%, and Iceland is attracting immigrants to fill jobs despite wages having fallen dramatically. The fall in Icelandic currency has hugely reduced imports, and in and of itself thus contributed to surplues where once there were deficits. And as we can see, despite telling the bondholders to shove it, the country is not shut out of debt markets.

Compare and contrast that outcome now with the Greek austerity policies of Wolfie & the Troikanauts. The Greek economy slumped by 6.2% in the last quarter. It was the Greek economy’s worst in the last eight years, which is saying something given that the economy has contracted in 14 of the past 15 quarters.

The figure is the lowest for a second quarter since 2005. But nil desperandum, because Greece is swarming with privatisation advisors explaining how to sell off what’s left of Greek sovereign status. Unfortunately, the folks involved in that sector seem to be suspect. Who’d have thought it, eh? For example, the Slovakian official appointed by the European Commission to advise Greece on privatisations has resigned her position amid corruption allegations in her homeland. Anna Bubenikova, previously head of her country’s National Property Fund, has been advising Greece since August 2011. But the lady resigned her position at the NPF in January, after her name appeared in transcripts of a secret service investigation into Government corruption and cronyism.

The perfect person to advise the Greek elites on bribe-price economics therefore, but not the best person to be doling out advice on property.

Look everyone, this is what the nutters don’t want you to notice: debt forgiveness works. If the creditors are unforgiving, default works. Devaluation is also massively helpful. If you ringfence the social monies and work hard, you’ll still have austerity….but nobody needs to starve.

We, the ClubMeds, the squeezed middle, and the US worker are all being conned.

None of this money is real. Greece should’ve defaulted two years ago and gone back to a devalued Drachma. Had it done so, European taxpayers would be richer, and the Greeks would’ve had two massively successful holiday seasons. The Troika scorched earth drivel is clearly not working, and with every day, the ECB’s acceptance of bondholder haircuts and forgiveness becomes less and less tacit.

The Icelanders were right, and the ClubMed politicians are wrong. Berlin-am-Brussels is wrong. This represents bollocks deconstructed by evidence. It’s what The Slog does. It’s why it exists.