They’ve yet to write the final chapter on how the path taken by Iceland in the wake of the financial crisis (i.e., letting its banks fail and allowing its currency to plunge while consumer prices soared, all of which seems to have led to a much swifter recovery) compares to the path chosen by the rest of the world (i.e. printing money, propping up the banks, and lots of can-kicking), but this Washington Post story brings readers up to date.
Iceland’s journey from financial ruin to fledgling recovery is a case study in roads not taken and choices not made by other countries faced with calamity in recent years.
By the time the United States and Europe began to wrestle with the fallout of the global financial crisis in 2008, this tiny island nation was experiencing full-fledged meltdown. Its bloated banks failed. Its currency collapsed. The prime minister invoked God’s help, and protesters filled the streets.
Iceland did what the United States chose not to do — allow its biggest banks to fail and force foreign creditors to take a hike. It did what troubled European nations saddled with massive debts and tethered by the euro cannot do — allow its currency to remain weak, causing inflation but making its exports more desirable and its prices more attractive to tourists.
Three years later, the unemployment rate has fallen. Tourism has increased. The economy is growing. The government successfully raised money from investors in the summer for the first time since the crisis.
It’s tempting to conclude that this country of 318,000 people simply handled the crisis more adeptly than others, like a pick-your-own-ending book in which Icelanders chose correctly. There is a sliver of truth in that, but the full story is more complicated.
There’s much more to this report and it’s well worth reading in its entirety.
If nothing else, it should be interesting to see how Iceland is doing three, five, or ten years from now as compared to other Western nations. According to the latest data from The Economist, the Iceland economy has been booming lately, though, for some reason, projections for the New Year are very U.S.-like.