Doubts cast on Icelandic crisis model

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This is an interesting FT article on the lessons from the Icelandic case here.

27 Responses to “Doubts cast on Icelandic crisis model”

  1. What Goes Up... Says:

    The FT writes an opinion piece 2 months after a viral one:
    http://studiotendra.com/2012/12/29/what-is-actually-going-on-in-iceland/

    And 4 months after Sigrun Davidsdottir:
    http://uti.is/2011/11/iceland-successful-recovery-and-the-non-bail-out-banking-myth/

    Nice job!

  2. What Goes Up... Says:

    Some more Sigrun articles to show this is well trodden ground:

    Everything is relative, also angst
    http://uti.is/2013/02/everything-is-relative-also-angst/

    Iceland: reaping Icesave success – but capital controls are the unknown
    http://uti.is/2013/02/iceland-reaping-icesave-success-but-capital-controls-are-the-unknown/

    But I guess it ain’t news until the FT says it is.

  3. What Goes Up... Says:

    Here ya go – just to show good things come in threes – Olafur Margeirsson’s January article:
    The Economic Truth on Iceland
    http://icelandicecon.blogspot.ie/2013/01/the-economic-truth-on-iceland.html

  4. David O'Donnell Says:

    @WhatGoesUp_sson

    Ta for all that. Cool reading I’m sure. I’m a fan of ssons an dottirs.

  5. Bond. Eoin Bond Says:

    God, if only some people on here had been banging on previously that the Icelandic “recovery” isn’t quite as good as some people would otherwise have you believe…

    For example, hands up who knew that Iceland spent 43% of its GDP rescuing its banks?

  6. David O'Donnell Says:

    fyi Interview with Olli Rehn

    EU Currency Commissioner: ‘We Are Prepared to Initiate Sanctions’

    In a SPIEGEL interview, European Union Monetary Affairs Commissioner Olli Rehn discusses the current implementation of austerity measures in Europe, weaknesses in Italy and France and his view that even the smallest euro-zone countries are systemically relevant.

    http://www.spiegel.de/international/europe/interview-with-european-currency-commissioner-olli-rehn-on-euro-crisis-a-886736.html

    @Bond Eoin Bond

    I did not realise it was that high. The banks had zoomed to 6/7 times its GDP so default was really its only option …. let’s see how Cyprus at only 100% GDP gets on … Ireland remains the ‘sucker’ in the EZ …

  7. grumpy Says:

    “Even if you depreciate the exchange rate you can’t create more fish.”

    Have they tried Codology?

  8. Eureka Says:

    But the really cool (I mean really cool!!) bit is this

    http://m.rte.ie/news/touch/business/2013/0304/372466-exchequer-revenue-tax/

    How in the name of God is our current deficit sustainable (take away the one off BOI thing)!!
    That’s a serious question btw

  9. Tull Mcadoo Says:

    Cool as well that the political party in power when the economy tanked is back at the top of the polls in Iceland, Italy and Ireland.

  10. David O'Donnell Says:

    fyi
    Slovenia – avoided the Yugoslav bloodbath but now in turmoil …

    Slovenia:
    Alenka Bratušek has her work cut out
    4 March 2013 Dnevnik Ljubljana

    In taking over from the minority government of Janez Janša, who was booed in the street and ultimately ousted by the coalition, the new leader of the centre-left has a chance to tame the political crisis facing Slovenia. Unfortunately, a catastrophic economic situation awaits her.

    http://www.presseurop.eu/en/content/article/3488411-alenka-bratusek-has-her-work-cut-out

  11. Shay Begorrah Says:

    Oh dear god. I hate to be all fussy and numerate about it (I know some here have mixed feelings about actually measuring things) buy by comparison with Ireland Iceland remains a glowing success story.

    The crucial bit of the FT article is here:

    Iceland, in fact, spent more as a percentage of GDP than any other country apart from Ireland in rescuing its banks, according to the OECD.

    with the invisible proviso “so far” for those trapped in the Euro with us.

    When you remember that Ireland’s GDP overstates the real size of its economy the OECD direct fiscal costs graph looks pretty damned awful (2.5 times worse) for Ireland (the poster gimp for the ECB method) and remarkably good for Iceland’s burn ‘em all approach.

    Iceland’s 2012 unemployment level also peaked at half Ireland’s and less than 2/3 of the Eurozone average.

    Is there really anyone left who thinks the Eurozone’s approach to the European component of the global financial crisis was not inferior to the Icelandic model (outside of the Deuthsche bloc, the European Commission and ECB schills)?

  12. Shay Begorrah Says:

    Badly closed tags last time.

    Oh dear god. I hate to be all fussy and numerate about it (I know some here have mixed feelings about actually measuring things) buy by comparison with Ireland Iceland remains a glowing success story.

    The crucial bit of the FT article is here:

    Iceland, in fact, spent more as a percentage of GDP than any other country apart from Ireland in rescuing its banks, according to the OECD.

    with the invisible proviso “so far” for those trapped in the Euro with us.

    When you remember that Ireland’s GDP overstates the real size of its economy the OECD direct fiscal costs graph looks pretty damned awful (2.5 times worse) for Ireland (the poster gimp for the ECB method) and remarkably good for Iceland’s burn ‘em all approach.

    Iceland’s 2012 unemployment level also peaked at half Ireland’s and less than 2/3 of the Eurozone average.

    Is there really anyone left who thinks the Eurozone’s approach to the European component of the global financial crisis was not inferior to the Icelandic model (outside of the Deuthsche bloc, the European Commission and ECB schills)?

  13. John Corcoran Says:

    It appears Peter Sutherland has organised a lecture for Enda Kenny to be given at the London School of Economics on Monday next 11th March. He has previously organised one for John Bruton and our President Michael D Higgins.

    I wonder would the distinguished Mr Sutherland organise a lecture for me, a mere rent serf, at my old alma mater.

  14. John Foody Says:

    @ Shay

    ‘Is there really anyone left who thinks the Eurozone’s approach to the European component of the global financial crisis was not inferior to the Icelandic model (outside of the Deuthsche bloc, the European Commission and ECB schills)?’

    There are a number of crisises in Ireland among them Fiscal, Banking, mortgage, unemployment, future pension crisis.

    The burden of the first appears broadly progressive.
    However the burden of the remainder have disproportionatly targeted those in the 18-35 age bracket through negative equity, unemployment, insecure and worse t&cs for those employed, forced migration etc…

    I’d guess that the majority of people 50+ in Ireland are delighted an Iceland approach wasn’t adopted. It would have proved far too intergenerationally equitable.

    This has been repeated elsewhere in Europe. So I would guess that the answer to your question is directly related to the demographic you ask.

  15. Carson Says:

    @ Eureka

    “How in the name of God is our current deficit sustainable (take away the one off BOI thing)!!
    That’s a serious question btw”

    Well it clearly isn’t sustainable. Hence the endless cuts and tax hikes!

  16. seafóid Says:

    @ BEB

    “For example, hands up who knew that Iceland spent 43% of its GDP rescuing its banks?”

    60% of GDP is about average, innit. 43% is relatively cheap.
    But not the cheapest ever.

  17. Joseph Ryan Says:

    Bank Rescue?
    Two dead, two stumbling pillars and one dissected but still alive!

  18. grumpy Says:

    “Doubts Cast on non-Icelandic EU Crisis Model too”

    http://www.bloomberg.com/news/2013-03-04/eu-opens-way-for-easier-budgets-after-italian-austerity-backlash.html

    Note the colourful language here:

    “European finance ministers opened the way for looser budget policies after a backlash against austerity thrust Italy into political limbo and shattered months of relative stability in European markets. ”

    …and that’s with the Italian 10y yield below its 12 month average and the Stoxx Banks index at about 115, off its year high of 125ish but a long way above its 12 month low of 75.

    Imagine the political pirouettes that might get justified if markets do actually de-risk again.

  19. seafóid Says:

    Doubts cast on Irish austerity model too.
    No sign of that rocket yet.

  20. Tullmcadoo Says:

    Grumpy,
    Any prospect of Italy going …. Up and even Jens would be handing out fivers. Saner policy options are emerging if only to try to stem the unthinkable.
    Maturity on bail out will be extend to an war loan before this is over.
    Seafoid,
    Watch out for a pharma driven export boom starting in 2014!

  21. Eureka Says:

    Not happy – but actually right – the Germans
    http://www.spiegel.de/international/europe/a-886681.html

    They’re about to get very cross. And who could blame them. They can’t be expected to fund deficits in other countries. This is interesting
    Cyprus bailout – 75/25, Greece 75/25. Both together (60/40

  22. seafóid Says:

    @ Tull

    They become incredibly focused in the hours before it appears as though TSHTF.

  23. Joseph Ryan Says:

    @ALL
    Interesting post and poster on Namawinliake, just now.
    http://namawinelake.wordpress.com/2013/03/04/court-order-in-recent-nama-versus-sean-and-gayle-dunne-court-case-is-published/#comments

  24. Bryan G Says:

    Hands up who knew that the 43% figure for state support for private banks in Iceland refers to gross not net?

    Net is estimated by the IMF to be about 20%. This figure includes Icelandic CB losses as a result of its lending to banks before the final bust in Sept 2008. As I understand it banks were printing up their own bonds and exchanging them for newly printed Krona. When these bonds collapsed in value they were replaced with newly issued Treasuries to keep the CB’s balance sheet looking OK. However this is essentially debt being paid by the state to the state (like the new bonds swapped for the old PNs currently held by the CBI) so I think that the true net may be less than the 20% figure.

    The post-crash bank split in Iceland was into new banks containing domestic assets and deposits, with the old banks left with the foreign assets and deposits. Much of the state support for banks was for guaranteeing domestic deposits and recapitalizing the new domestic banks. Very little, if any, state support went to the old banks. Iceland recently won a complete victory in its Icesave dispute with the UK and the Netherlands. The court ruled that it was not responsible for compensating foreign depositors over and beyond what was in its (inadequate) deposit guarantee scheme. Those depositors have claims on the assets of the bad banks, but no claims beyond that on the state.

    A key metric is what proportion of privately incurred losses were assumed by the state. In Ireland this was about 50%. (Total losses about 100bn, 64bn injected by state, with ELG fees, coco sales and value of current stakes in AIB/BOI bringing net to about 50bn). In Iceland this amount was less than 5%.

    Thus the principle that private losses should not be socialized was implemented far more strongly in Iceland than in Ireland (over 10 times more strongly to be exact).

  25. Shay Begorrah Says:

    @Bryan G

    Hands up who knew that the 43% figure for state support for private banks in Iceland refers to gross not net?

    Me teacher! Me!

    Well, I just scanned (scanned is the accepted shorthand for “looked at the pictures in”) the one page long OECD Economic Survey of Iceland 2011 and the numbers are there in a child friendly format.

    Amusingly the authors had to cut out the middle of the cost as a percentage of GDP range in the diagram because otherwise Ireland’s costs would look as crazy as they in fact are. Another reminder of how the cost of the Europe wide financial sector crisis was allocated.

    The FT article is not up to their usual standards, someone felt the need for editorial “balance” most likely.

  26. Michael Hennigan - Finfacts Says:

    People are always in search for convenient comparisons to support an argument and that was what Iceland appear to have provided.

    However, even making claims on movements in jobless rates require a lot of caveats.

    A country having its own currency could produce export miracles after a devaluation…maybe but Iceland’s export surge came before the currency crash. Then of course superficial observers wouldn’t separate out plunges and surges in aluminum prices or the decision to break European fish quotas.

    Iceland’s prime minister had spoken in 2009 about cutting spending by 30% in 3 years and the central bank expected household spending would slump 19.7% and fixed investment by 48.4%.

    It was also expected that the collapsed Landsbanki bank would have sufficient assets to pay some of its Icesave subsidiary guarantees.

    The information on the rise in net debt as a ratio of GDP from 11% to over 60% was easily available.

  27. seafóid Says:

    “A country having its own currency could produce export miracles after a devaluation..maybe”

    Very hard at the moment with so many trying the same thing . UK is going for the triple dip and sterling is far lower than it was a few years ago.

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