Chart of the Week: Iceland Recovery Impresses

Iceland went its own way during the worldwide financial crisis. It did not bailout its profligate bankers choosing instead to penalize their bondholders, not its citizens. It was criticized for enhancing the social safety net instead of imposing crippling austerity measures as demanded by outside financers. Now the country's economic recovery is impressing the critics. This chart shows why:

source: Council on Foreign Relations

Impressive, US Person? Yes, because the chart does not reveal the facts that the Balkan countries were a lot poorer than Iceland to start with. They have lot more catching up to do. The Balkan countries all imposed onerous austerity measures required by the European Union and creditor Sweden. It was an act of faith in the painful process of "internal devaluation": cutting state expenses and increasing productivity but keeping their currencies pegged to the Euro. In contrast, Iceland let it's banks "too big to fail" go bust, imposed capital controls to bolster it's devalued krona, and increased consumer protection by guaranteeing domestic deposits and forgiving underwater loans equivalent to 13% of GDP. Icelanders pelted their parliament with rocks, but they listened inside.

Iceland has put the needs of it's citizens ahead of markets at every juncture. As the IMF sucinctly put it, "Key to Iceland's recovery was an IMF-supported program [which] sought to ensure that the restructuring of the banks would not require Icelandic taxpayers to shoulder excessive private sector looses." The $2.1 billion IMF aid Iceland received expired in August. Unemployment is coming down, but private debt remains high and it will take time for the country to return to robust growth. The worst example of how to handle a financial crisis is Ireland. It choose to prop up corrupt banksters and guarantee all their liabilities. The government has been injecting capital ($64 billion) since while the population has been brought to the edge of peonage with imposed austerity budgets. Iceland, the little country that could, is finally getting it's economic due. Most Icelanders now do not want to join the European Union, and they are holding the perps accountable.  Iceland's special prosecutor has said it may indict as many as 90 people while 200, including the top three banksters, face criminal charges.  Is anybody in Washington paying attention?