THE CLAIRE FOSS JOURNAL
Iceland saved the Taxpayer instead of saving the Banks
Unlike other nations, including the U.S. and Ireland, which injected billions of dollars of capital into their financial institutions to keep them afloat, Iceland placed its biggest lenders in receivership.
It chose not to protect creditors of the country’s banks, whose assets had ballooned to $209 billion, 11 times gross domestic product.
The crisis almost sank the country. The krona lost 58 percent of its value by the end of November 2008, inflation spiked to 19 percent in January 2009 and GDP contracted by 7 percent that year. Prime Minister Geir H. Haarde resigned after nationwide protests. With the economy projected to grow 3 percent this year, Iceland’s decision to let the banks fail is looking smart -- and may prove to be a model for others.
“Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks,” says Nobel laureate Joseph Stiglitz, an economics professor at Columbia University in New York. “Ireland’s done all the wrong things, on the other hand. That’s probably the worst model.”