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"The Rules Are As Follows:

Allow your ailing banks to collapse; devalue your currency, if you have one of your own; introduce capital controls; and try to avoid paying back foreign debts."
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Financial Recovery of Iceland a Case Worth Studying.
Looking for Lessons in Iceland's Recovery

(January 10, 2014)

By Guido Mingels

In 2008, Iceland experienced one of the most dramatic crashes any country had ever seen. Since then, its recovery has been just as impressive.

Are there lessons to be learned? DER SPIEGEL magazine went to the island nation to find out.

What should one expect from a country in which the sentence, "What an asshole!" is a compliment?

Icelanders say "asshole," or "rassgat," when they tousle (ruffle) a child's hair or, greet friends, and they mean it to be friendly.

While trudging through a lava field within view of the Eyjafjallajökull volcano, the guide says: "Iceland is the asshole of the world." That, too, is a positive statement. It's also a geological metaphor.

In Iceland, which lies on the Mid-Atlantic Ridge and thus on the dividing line of the North American and Eurasian tectonic plates, the earth has a tendency to relieve itself through various geysers, volcanoes and hot springs.

(Snip . . . .)

What happened in Iceland from 2008 to 2011 is regarded as one of the worst financial crises in history.

It seems likely that never before had a country managed to amass such great sums of money per capita, only to lose it again in a short period of time.

But Iceland, with a population of just 320,000, has also staged what appears to be -- the fastest recovery on record.

Since 2011, the gross domestic product has been on the rise once again, most recently at 2 percent.

What's more, salaries are rising, the national debt is sinking and the government has paid off part of the billions in loans it received in 2008 from the International Monetary Fund ahead of schedule. It's a sign of confidence.

(Snip . . . . )

Iceland's rapid return to health hinged on a series of measures that Nobel laureate Paul Krugman later referred to as "doing an Iceland."

Krugman, an admirer of Iceland's dramatic comeback, has recommended a similar policy cocktail for other nations in crisis.

The Rules Are As Follows:

Allow your ailing banks to collapse; devalue your currency, if you have one of your own; introduce capital controls; and try to avoid paying back foreign debts.

That may sound like an extremely self-serving recipe -- and it was.

Whereas billions of public money was pumped into the banking system in Ireland so that financial institutions could pay back their creditors, Icelanders voted against this route in two separate referenda.

They couldn't see why they should pay for the greed of foreign investors who followed the Siren song of high interest rates to the island nation.

Jónsson only shakes his head wearily when asked if he has a guilty conscience. He claims to have been one of the few who warned of the currency bubble long before it burst.

Now, he is excited about the country's new opportunities, which are remarkably similar to the ones it has always had. "A hard-working populace.

A healthy democracy. A high level of education. Tourism. Natural resources, such as wind, hydro-power and geothermal energy. And fisheries. What would we be without the fisheries?"

(Snip . . . .)

The Knitting and Sex Expert

The Icelandic financial crisis and recovery could be seen as the most expensive group therapy of all time. The Icelanders had five years to come together and ask themselves: Who are we, and what is our place in the world?

"I am happy that the crisis happened," says Ragnheidur Eiríksdóttir, who calls herself Ragga. "We Icelanders know once again what's important to us."

If one is to believe Ragga and several opinion polls, knitting is among these things. Since 2008, she says, "suddenly everyone started to knit Icelandic sweaters like crazy."

Indeed, young Icelanders do seem to walk around less frequently in cheap labels like Zara and H&M than they do in patterned hand-knit sweaters.

"They are warm, they are beautiful, they are very Icelandic. There is something comforting about them," Ragga says. She also sees them as the antithesis of suits, the globalized uniform of bankers.

Thus Eiríksdóttir began charging money to teach young Icelanders to knit. She has since produced a knitting DVD and now travels through Europe and the United States, and offers knitting tours through her own country with her company Knitting Iceland.

After the crash, many Icelanders turned away from the world and global trade. They began spending more time with their families and children, in the outdoors and with Icelandic books. Alcohol consumption dropped among young Icelanders, and the subjective feeling of happiness increased.

And along with the demand for knitting yarn came an increased desire for traditional Icelandic dishes such as lamb offal, pickled sheep testicles and horrible-smelling fermented shark meat. You are what you eat, and the Icelanders wanted to be Icelanders again.

Ragga orders another beer. She looks a bit like an ancient goddess of love in a wool sweater. She is also an expert on Icelandic relationships.

She moderates a television dating show and is currently writing a book called "The Sexual Secrets of Icelanders." Women and men in the country, she says, have little trouble finding each other and hooking up. What else should one do in winter, where night lasts all day?

Why did Iceland succeed where countries like Greece and Spain failed?

The minister avoids the question, saying that he finds comparisons with southern European nations in crisis to be unhelpful. In contrast to such countries, he notes,

Iceland always had excellent state institutions and very little sovereign debt. "It was exclusively a problem relating to the irresponsible private sector," he says.

More at:

http://www.spiegel.de/international/europe/financial-recovery-of-iceland-a-case-worth-studying-a-942387.html
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