Wednesday, 8 December 2010

Iceland Stands Tall Again

Little Iceland was a target for particularly vindictive gloating when it lay stricken in the wake of recession.  Why?  Because Europhiles throughout the Continent had long despised its blue-eyed sheiks.  The free trade, comfortable budget surpluses and ever-climbing per capita GDP Iceland enjoyed outside the gargantuan suprastate next door stood as a defiant repudiation of the canon that small countries unwilling to "enhance" their sovereignty by paying homage to the European Commission would find themselves destitute and isolated.

Thus the 2008 financial crisis was  – seemingly – a triumphant vindication of the Europhile credo.  While in Iceland the banks which had spearheaded its commercial "outvasion" collapsed into administration and external debt levels soared, in the EU sheer mass, multi-national regulation and the all-important euro had purchased safe harbour from the economic storm, and its acolytes never missed an opportunity to crow.

Their triumph was short-lived, of course.  The EU's harbour was not so safe after all, and its institutions soon found themselves forced to beg, borrow and extort whatever they could to stave off catastrophe.  Trillion dollar eurozone bailouts evaporated into the ether, Greece went into total meltdown, and the much put-upon Irish had to be bullied and cajoled into historic levels of public indebtedness.  (It does not take the gift of clairvoyance to see who will be next, either.)

Iceland, meanwhile, though shamefully abused by the British Labour government at its most vulnerable by means of twisted anti-terror laws and forced to avail itself of the predatory IMF, has stayed the course of recovery and exited its recession.  Devaluation (a path not open to the Greek or the Irishman) has helped exports, and the economy has grown by 1.2% alongside a 17% increase in the national OMX share index.  Talk of accession to the EU now seems utterly utterly fanciful.

Iceland achieved this feat in the face of seemingly insurmountable odds through displaying the same exceptionalism and perseverance that saw their little trawlers through the Cod Wars, and by defying so-called conventional wisdom.  "The difference is that in Iceland we allowed the banks to fail", was the verdict of the superbly-named Icelandic President, Ólafur Ragnar Grímsson:

"These were private banks and we didn't pump money into them in order to keep them going; the state did not shoulder the responsibility of the failed private banks."

Yes, despite the urgings of their Social Democrat government and the veiled threats of outsiders, Icelanders rejected by 93% an all too familiar scheme to burden ordinary taxpayers with the accumulated debts of a reckless private banking sector when it was put to a referendum, and it has paid off.

There is a valuable lesson here, not just for Europhiles, but for conservatives subscribing to the profoundly anti-free market notion that banking institutions are "too big to fail", too.

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