Bloomberg has an article about Iceland’s remarkable recovery since the economic collapse of 2008. The tiny island was the victim of a massive, bank-driven bubble that produces massive debt levels. Unlike every other country facing the economic crisis, Iceland chose to prioritize the needs and well-being of their citizenry over their creditors. This included writing down all debts where mortgages were worth over 110% of the value of the house, essentially eliminating all seriously underwater properties and freeing up homeowners to have mobility.
After Iceland defaulted on their debt, their economy briefly contracted, but has grown at a substantially greater rate than the rest of Europe since. Additionally, Iceland has actually prosecuted bank executives who criminally inflated the housing bubble.
Iceland’s approach to dealing with the meltdown has put the needs of its population ahead of the markets at every turn.
Once it became clear back in October 2008 that the island’s banks were beyond saving, the government stepped in, ring-fenced the domestic accounts, and left international creditors in the lurch. The central bank imposed capital controls to halt the ensuing sell-off of the krona and new state-controlled banks were created from the remnants of the lenders that failed.
It’s shocking and sad that Iceland’s response – to prioritize the needs of its population! – is unique. Only in a truly broken and corruption economic system are the needs of banks considered more important than the needs of people.
The help Iceland provided to their citizens, the prosecutions of banksters, the changing of the rules of the economic road to protect the country from further damage at the hands of reckless banks, and the resulting strong economic growth stemming from a stabilized housing and banking system should be a blue print that could be deployed not only in Europe, but here in the US. Instead, austerity and the perpetual bailout of the banks who caused this crisis is the norm and Iceland is functionally ignored by elite policy makers.