Let Banks Fail Is Iceland Mantra as 2% Joblessness in Sight
Key Excerpts from Article on Website of Washington Post/Bloomberg News
Posted: February 3rd, 2014
Iceland let its banks fail in 2008 because they proved too big to save. Now, the island is finding crisis-management decisions made half a decade ago have put it on a trajectory thats turned 2 percent unemployment into a realistic goal. While the euro area grapples with record joblessness, led by more than 25 percent in Greece and Spain, only about 4 percent of Icelands labor force is without work. Prime Minister Sigmundur D. Gunnlaugsson says even thats too high. The islands sudden economic meltdown in October 2008 made international headlines as a debt-fueled banking boom ended in a matter of weeks when funding markets froze. Policy makers overseeing the $14 billion economy refused to back the banks, which subsequently defaulted on $85 billion. The governments decision to protect state finances left it with the means to continue social support programs that shielded Icelanders from penury during the worst financial crisis in six decades. Of creditor claims against the banks, Gunnlaugsson says this is not public debt and never will be. Successive Icelandic governments have forced banks to write off mortgage debts to help households. The governments 2014 budget sets aside about 43 percent of its spending for the Welfare Ministry, a level that is largely unchanged since before the crisis. Inflation, which peaked at 19 percent in January 2009, ... was 4.2 percent in December. To support households, Gunnlaugsson in November unveiled a plan to provide as much as 7 percent of gross domestic product in mortgage debt relief. The government intends to finance the plan, which the OECD has criticized as being too blunt, partly by raising taxes on banks.
Note: Why is Iceland's major success in letting banks fail getting so little press coverage? For a possible answer, click here. For more on government responses to the banking crisis and their impacts on people, see the deeply revealing reports from reliable major media sources available here.