A Contrast in Crisis Response

We recently received news that the Economy of Iceland had once again returned to growth. Remember that it was just two short years ago when the economy of Iceland was driven off a cliff by it's banking sector. Below are two recent articles I found interesting contrasting the different ways in which each country went about handling it's bank crisis.

IRELAND, ICELAND AND LETTING BANKS FAIL

What’s interesting about the two crises is the dramatic difference in the ways they were able to attack their problems. While both have implemented austerity measures there have been vast differences. In particular, Ireland, embroiled in the flawed single currency Euro has been unable to devalue their currency while at the same time being forced to succumb to the pressures of foreign bankers. In Iceland, they have benefited enormously from being able to devalue the Krona. Finance Minister Steingrimur Sigfusson recently said:

“(devaluing the Krona) significantly increased our export business and got us ahead of our competitors which, without a doubt, helped us through this difficulty and continues to drag us along and eventually out.”

In addition, Iceland did not force the public to accept the losses of private bankers.

Iceland’s Economy Grew in Third Quarter as Recovery Takes Hold

The $12 billion economy troughed in the second quarter, when output slumped an annual 7.5 percent led by a 16 percent drop in fixed investment. The government’s decision two years ago to let its lenders fail and protect taxpayers from the cost of a bank bailout may allow Iceland to recover faster than some euro members such as Ireland as exports pick up and households start spending again.

“The economy is expected to hit bottom in the next few months,” said Ingolfur Bender, an economist at Islandsbanki Research, in a note before the report was published. “The pre- conditions for growth have been re-established after a massive correction.”

Working poor, carers and the sick will 'take the hit'

MANY PEOPLE will be driven into poverty, and those already in poverty will see their situation deepen as a result of the Budget, the director of Social Justice Ireland said yesterday.

Fr Seán Healy said the claim by Minister for Finance Brian Lenihan that the Budget was progressive and had distributed the burden fairly “was patently untrue”. The Budget was “unjust, unfair and inequitable”.

The working poor, low-income families, carers, the sick, people with disabilities, children and the unemployed would “take the hit”. And senior bondholders, the corporate sector and those who benefit from tax breaks that had not been removed would “escape”.

These two examples should be fascinating to us all because they will be very clear and loud examples of what will and will not work in the long run. Stay tuned, things are about to get interesting!