Iceland’s President: we were saved by avoiding austerity

10:40 am - February 1st 2013

by Sunny Hundal    

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This week at Davos, most of the time the world’s richest people spent time patting each other on their backs.

But there were some good parts too. Al-Jazeera briefly interviewed Iceland’s President Ólafur Ragnar Grímsson on how the country managed to turn around its economy so quickly.

He says:

I think the primary reason is that we were wise enough to realise this was also a fundamental social and political crisis, but overall we didn’t follow the traditional prevailing orthodoxies of the western world of the last 30 years.

We introduced currency controls, we let the banks fail, we provided support for the poor, we didn’t introduce austerity measures of the scale you are seeing here in Europe… and the end result four years later is that Iceland is enjoying progress and recovery very differently from the other European countries that suffered from the financial crisis.

If there is a clear example of a country that bucked the austerity trend and rebounded quickly, Iceland is it.

(via Bright Green Scotland)

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments

Bucked the austerity trend? Facts speak otherwise.
If Britain were actually doing what Iceland had to do, you’d be howling – as Wikipedia puts it, “currency devaluation effectively reduced wages by 50% making exports more competitive and imports more expensive.”.

First of all, Iceland has devalued its currency a *lot*. That’s just one way of implementing “austerity”, provided you don’t allow it to develop into an inflation loop – as the Icelanders haven’t. As Matthew Yglesias, hardly of the right wing, puts it: “Currency devaluation is best understood not as an alternative to austerity, but as the correct way for a debt-burdened society to implement austerity.”

Second, many in Iceland still call it austerity, even when they think they did it better than others (where they may be quite right, although their solution may anyway not be scaleable to e.g. Britain which has some 200 times larger economy):
“After gaining power with the Social Democrat’s shortly after the crash, Sigurdardottir cut public spending and introduced austerity measures that hurt, but were accepted by, the majority of the country’s 320,000 citizens.”

But then Iceland is not in the euro, and it isn’t the EU either, so there is more freedom about what to do – they’re only in the free trade area.

I think the best we can say is they avoided fatally crippling austerity by refusing to bail out their banks who when they went bankrupt owed their creditors billions and billions. They nevertheless lost the huge tax take from the Icelandic Bankers’ Ponzi Scheme which they had very much come to depend on and that is unavoidable. It is debatable whether the austerity they have had to impose has been fairly administered with no doubt as here the poor, sick, disabled, young, old, women, etc. being expected to shoulder the heaviest burden whilst the rich get richer.

Of course with such a small population the obviousness of the inability of Iceland to bail out its banks was clear to all unlike here where the hired political lackeys of the ruling elites were able to persuade us to close down hospitals, schools, cut public spending and welfare, ruin the state’s balance sheet, liquidate centuries of accumulated national wealth and thoroughly debase the currency to keep paying out the bankers creditors as most of the world’s billionaires and monopolies had money tied up in the counterfeit bonds issued by City banks (£6.7 trillion) although compared to America it is still small beer. Now that place really is up shit creek without a paddle.

Ah, the old Iceland stiffed the creditors myth that so many people despite the evidence believe. Iceland was in no position to save their banks but it was not through want of trying. Far from stiffing the creditors, the creditors are stiffing Iceland. They have no engaged in austerity is comedy gold. Do yourself a favour Sunny and read what a leftie in Iceland has to say about your delusion.

” Why are these myths being spread about Iceland? Why do people think that Iceland is a progressive paradise when in actual fact its a Thatcherite’s wet dream? ”

” I could go on about how servicing household debt takes a bigger and bigger share of every Icelander’s budget, how income levels have collapsed, how the government cutbacks have resulted in massive drops in service quality, both in the health service and in the education system. I could talk about how the Icelandic government has bought wholesale into the austerity myth. I could talk about how Iceland’s nordic-style welfare system is being dismantled. I could talk about how the elderly are being starved to death or how the poor are being refused help. I could talk about the brain drain as specialists flee the country. I could talk about how product selection in grocery stores has collapsed. I could talk about the political crisis where none of the political parties dare to take a stand against the banks. I could talk about how the banks are again expanding and playing the exact same game they did in the bubble. I could go on and on but if you haven’t been listening so far, nothing else I have to say will convince you.

Of course, that means that you are an idiot who refuses to acknowledge facts, but, thankfully, being a moron is your burden to bear, not mine.”

4. Northern Worker

And by letting the banks go bust, which is what we should have done.

The UK simply didn’t let capitalism take its course. When companies are no longer viable, they go bust and other capitalists take up the baton. If companies take huge risks (eg gamble) and lose, then they should go belly up. Simple as that. But we didn’t let it happen. That was a big mistake we’re all paying for now, literally.

It would have been a lot cheaper for taxpayers in the UK to back deposits and let the banks go.

I see the Netherlands has nationalised a failing bank today. So Dutch workers are now lumbered with the debts of a bank which was clearly run by idiots – more than likely paid a fortune. The Dutch join us fools here in the UK bailing out the incompetence of others, and I bet they keep paying the managers to keep them in style.

@3 that link should be compulsory reading, thanks.

Sunny, the title does not fit in the slightest what Iceland has done. In any event, I agree with what Iceland did. They acted in a far more capitalist manner, allowing toxicity to flush from the system, and re-privatised as a matter of urgency.

So thanks for the acknowledgment that capitalism was the best method of dealing with this crash. All we have now in this country is a bunch of failed institutions being held up by successive useless governments.

7. So Much for Subtlety

It would be cruel to pile in with everyone else here, but I note what he said was:

we didn’t introduce austerity measures of the scale you are seeing here in Europe

No austerity measure on the scale of Europe is not the same as no austerity measures.

Iceland is very small for one thing.

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