bailouts: iceland-style

Iceland made very different decisions than other European countries when the financial crisis hit them in 2008. They were heavily criticized back then for their actions – turns out: they did the right thing.

“Iceland holds some key lessons for nations trying to survive bailouts after the island’s approach to its rescue led to a ‘surprisingly’ strong recovery, the International Monetary Fund’s mission chief to the country said. Iceland’s commitment to its program, a decision to push losses on to bondholders instead of taxpayers and the safeguarding of a welfare system that shielded the unemployed from penury helped propel the nation from collapse toward recovery, according to the Washington-based fund.”

What did they do?

“Iceland refused to protect creditors in its banks, which failed in 2008 after their debts bloated to 10 times the size of the economy. […] The fact that Iceland managed to preserve the social welfare system in the face of a very sizeable fiscal consolidation is one of the major achievements under the program and of the Icelandic government.”

– Source: Businessweek.com
Absolutely worth reading.

And while you’re at it, read up on Iceland. Some interesting facts:

• “As of 2011, Iceland was ranked 2nd in the strength of its democratic institutions”. (Wikipedia)
• “The country has a high level of civic participation, with 84% voter turnout during the most recent elections, compared to an OECD average of 72%.” (Wikipedia)
• Reykjavík is currently governed by the Best Party: “The party ran in the 2010 city council election in and won a plurality on the Reykjavík City Council, receiving 34.7% of the vote, defeating the Independence Party which received 33.6%. The founder and chairman of the party is the incumbent Mayor of Reykjavík Jón Gnarr [a comedian]. As the party was founded several months after the last Icelandic parliamentary election, it has not yet had the opportunity to compete on the national level. The party’s initial success is seen as a backlash against establishment parties in the wake of Iceland’s 2008-2011 financial crisis.” (Wikipedia)