Having just returned from a trip to the Land of Ice & Fire, that is Iceland – a country that is finally lifting controls imposed during its Banking Crisis management in 2008, I couldn’t escape the aura of regeneration, honesty & freshness that revealed itself during my stay.
Earlier this summer, Katrín Júlíusdóttir the Icelandic Finance Minister announced the end of capital controls –or limitations on what people there can do with their money– imposed after the 2008 crash.
While other countries are still suffering from flat inflation and badly behaved, but contrite bankers eye-balling Tribunals’ Investigators, Minister Júlíusdóttir has announced a 39 per cent tax on investors looking to take their money overseas. This summer Iceland imposed the tax to prevent it haemorrhaging money as it loosens bank laws imposed six years ago, when Iceland made the shocking decision to let its banks go bust.
Rather than maintaining the value of the Krona artificially, Iceland chose to accept inflation in a lesson to leading global nations on Icelandic Economics.
This pushed prices higher at home but helped exports abroad – in contrast to many countries in the EU, which are now fighting deflation, or prices that keep decreasing year on year.
Iceland also allowed bankers to be prosecuted as criminals – in contrast to the US and Europe, where banks were fined, but chief executives escaped punishment. The chief executive, chairman, Luxembourg ceo., and second largest shareholder of Kaupthing, an Icelandic bank that collapsed, were sentenced in February to between four and five years in prison for market manipulation and economic fraud. “Why should we have a part of our society that is not being policed or without responsibility?” said special prosecutor Olafur Hauksson at the time. “It is dangerous that someone is too big to investigate – it gives a sense there is a safe haven. Four former Kaupthing Bank financiers are being held in a small open prison since February this year at Kvíabryggja , and are apparently living there in relative luxury and comfort, according to the sources of local news service.
While the UK government nationalised Lloyds and RBS with tax-payers’ money and the US government bought stakes in its key banks, Iceland adopted a different approach. It said it would shore up domestic bank accounts. Everyone else was left to fight over the remaining cash.
It also imposed capital controls restricting what ordinary people could do with their money– a measure some saw as a violation of free market economics.
The plan worked. Iceland took a huge financial hit, just like every other country caught in the crisis. Iceland has jailed those in charge when its banks were borrowing 20 times their net worth. Anecdotal evidence from my trip, revealed that: when one of the Bank Directors commenced his jail sentence, in the first month all Prisoners at that Jail received a new mattress; a large scale Farmer, in the Tourist Industry in South Iceland told me that he likes what his Government did, but in their short term high inflation the poor suffered & the rate of suicide shot up. He said that more Bankers in prison is a good thing, but how can Bankers (or more accurately Banksters) lose/steal Billions, while a petty theft gets someone months in prison, and economically-motivated suicide casualties & their families & loved ones pay the highest price of all.
This year the International Monetary Fund declared that Iceland had achieved economic recovery ‘without compromising its welfare model’ of universal healthcare and education.
Other measures of progress like the country’s unemployment rate compare just as well with countries like the US. This year, Iceland will become the first European country that hit crisis in 2008 to beat its pre-crisis peak of economic output.
With the reduction of capital controls – tempered by the 39 per cent tax – it continues to make progress.
Sometimes massive currency devaluation leads to a speedier recovery
A Bankster’s House on Westman Islands (South-west Iceland)
Iceland had its own currency, the krona; it could artificially devalue it relative to other currencies, reducing the real value of high wages by 50 per cent, cutting spending, making exports more competitive and imports more expensive.
The devalued currency also put Iceland on the map as a tourist destination.
When Iceland’s back was to the wall, it recognised that it must ‘thank its lucky stars’ that it is the smallest country in Europe that has its own currency. Its monetary & fiscal policies are self-determined; it doesn’t have to crouch under the lash of a Frankfurt-administered Euro. When Iceland’s banks collapsed, the Icelandic government autonomously & strategically made a decision to let them go into administration rather than bail them out. Significantly – the whole Government was behind the plan. “The unifying issue was that the taxpayer should not take on the debt,” the 40-year old Icelandic Prime Minister, [since 2013] Sigmundur Davíð Gunnlaugsson said. Instead, Iceland restructured the Banks and took a Sterling£1.37 billion loan from the IMF. It very consciously shunned austerity, even increasing social welfare in some cases, and turned its back on debts the Country owed to companies abroad.
One big difference is that Iceland’s debts were owned by private institutions like banks, while Greece mostly owes money as a state. There was little hesitation in this critical move to incinerate the risk-taker/ Bond-holders/ Banks. This type of breakthrough thinking at Government level, has promoted a sense of national pride among many Icelanders.
“A certain sense of national pride is important in dealing with all sorts of national problems, even economic problems, because pride helps people to stick together when faced with difficult issues, even when it looks like a case of David vs. Goliath,” Gunnlaugsson said.