Lessons From Iceland Since Iceland’s banking system

Lessons From Iceland

Since Iceland’s banking system collapsed in late 2008, the small island state has served as a pioneering counter example to Europe’s way of handling a debt crisis. When Icelandic banks, which had grown to 10 times the country’s annual income, could no longer refinance their debt, Reykjavik did three things. It restructured the banks, letting creditors fight for the scraps while new banks continued to serve the local economy; it let the currency plummet; and it imposed foreign exchange controls, preventing foreigners from repatriating their investments en masse. Eurozone leaders took a different course on all three counts. First, they chose to bail bankers out instead of writing down debts. The second policy, devaluation, was not available to them short of leaving the euro. And third, except for Cyprus, they avoided controls on capital flows. http://ow.ly/Okmqk

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s