Reading Paul Krugman’s recent posts (here and here) reminded me that I forgot to write a post about my recent trip to Iceland. I presented at a very interesting conference on sovereign debt organised by Reykjavik University. Here is a link to slides and papers, which were presented on October 7 and 8.
My presentation was titled “One Letter and Six Months? Ireland and Iceland Three Years On”–the slides are here. One issue I discussed was whether Euro membership ultimately helped or hurt Ireland.
Much of the discussion surrounding Iceland in 2008 focused on the fact that they were outside the Eurozone and so could not obtain liquidity support from the ECB. While this was viewed as a negative factor, one could argue today that the (enforced) Icelandic approach avoided the mistakes associated with confusing a solvency crisis with a liquidity crisis. My conclusion: Without a clear policy on bank resolution, the Eurozone is not a good place to have a systemic banking crisis.