The Icelandic Model of Handling Debt Crises
by: Michael Scott-Moore, Miller-McCune | News Analysis
Iceland did something right in the credit crisis, perhaps offering lessons both for Greece and Occupy Wall Street protesters
The latest euro rescue plan lurched into crisis this week after the Greek prime minister decided to put the package to a popular vote. This unexpected gesture of independence “sent tremors through Europe’s financial markets,” according to The New York Times, and “hammered” U.S. markets, “showing once again how the domestic politics of even the smallest members of the European Union can create troubles” beyond all proportion.
The panic over Greece, of course, is panic over the euro. Another European country, Iceland, took a far more radical path than did Greece, yet it went largely unnoticed. Iceland, in 2009, did what Greece would like to do now: it let its banks fail, and told their creditors to take a hike.
Two years on, Iceland’s economy is recovering, while Greece and Ireland and other euro-zone members struggle with huge taxpayer-funded bank bailouts and austerity measures that will probably fail to create jobs. “Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks,” Joseph Stiglitz, the Nobel Prize-winning economist, told Bloomberg. “Ireland’s done all the wrong things, on the other hand. That’s probably the worst model.”
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