Let Banks Fail Is Iceland Mantra As 2% Joblessness In Sight
Iceland did what the US should have done, but our government is controlled by the bankers, who claimed they were “too big to fail”. Iceland decided they were “too big to save”. The US hasn’t jailed any bankers, but Iceland has. Iceland’s economy is on the mend. The US economy is a disaster. Who was right, Iceland or the US? – Shorty Dawkins, Associate Editor
This article comes from Bloomberg.com
Iceland let its banks fail in 2008 because they proved too big to save.
Now, the island is finding crisis-management decisions made half a decade ago have put it on a trajectory that’s turned 2 percent unemployment into a realistic goal.
While the euro area grapples with record joblessness, led by more than 25 percent in Greece and Spain, only about 4 percent of Iceland’s labor force is without work. Prime Minister Sigmundur D. Gunnlaugsson says even that’s too high.
“Politicians always have something to worry about,” the 38-year-old said in an interview last week. “We’d like to see unemployment going from where it’s now — around 4 percent — to under 2 percent, which may sound strange to most other western countries, but Icelanders aren’t accustomed to unemployment.”
The island’s sudden economic meltdown in October 2008 made international headlines as a debt-fueled banking boom ended in a matter of weeks when funding markets froze. Policy makers overseeing the $14 billion economy refused to back the banks, which subsequently defaulted on $85 billion. The government’s decision to protect state finances left it with the means to continue social support programs that shielded Icelanders from penury during the worst financial crisis in six decades.
Of creditor claims against the banks, Gunnlaugsson says “this is not public debt and never will be.” He says his main goal while in office is “to rebuild the Icelandic welfare state.”
Though bank creditors, many of them hedge funds, are still trying to recoup their money, Iceland’s approach has won praise from the International Monetary Fund and from numerous economists, including Nobel Laureate Paul Krugman.
Successive Icelandic governments have forced banks to write off mortgage debts to help households. In February 2010, 16 months after Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf failed, unemployment peaked at 9.3 percent. The rate was 4.2 percent in December, according to Statistics Iceland. In the euro area, unemployment held at a record 12.1 percent in November, Eurostat estimates.
“Even though the situation is a lot better here than in many other countries, having over 4 percent unemployment is something we don’t want,” said Gunnlaugsson, whose government was elected in April.