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Could Iceland Be A Model For Debt-Ridden Europe?

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On the BBC website

http://news.bbc.co.uk/1/hi/programmes/from_our_own_correspondent/9550667.stm

Nearly three years after the Icelandic economy imploded, the country appears to be recovering, and some believe its approach may offer a possible solution to Europe's debt problems.

Iceland does not seem like a country in the grip of a crisis.

On my first day the sun was shining brightly and out in Reykjavik's main shopping area the shops and boutiques, the cafes and restaurants were busy. Indeed, Reykjavik seemed pretty much like any other prosperous northern European city.

Yet Iceland was hit hardest by the credit crunch in 2008. Its current recovery is why Iceland is being held up as the model for an alternative way to deal with the debt that plagues so many economies.

That is because when Iceland's banks went spectacularly bust, instead of pouring in billions of taxpayers' money to shore them up, Iceland just closed them down.

Their debts were so huge that, in truth, the country had little choice. Nevertheless, it was a radical strategy. Iceland effectively said "stuff you" to the banks' creditors.

Foreign debts were written off - including $8bn (£4.9bn) of deposits from savers in the UK and Holland. "Bankrupting your way to recovery," it has been called.

Iceland's president is certainly convinced the strategy is working. Olafur Ragnar Grimsson reels off a series of impressive economic statistics when I meet him in his stark mansion on a forbidding spit of land jutting out into the bay outside Reykjavik.

He tells me how the economy is now growing faster than that of most other European countries and with a lower public sector deficit. Unemployment is falling and Iceland has just raised a billion dollars at favourable rates on the international market.

But Iceland's approach is about much more than just getting its banking sector in order, the president tells me. It is also about affirming the will of the people over the financial institutions.

"In Europe there is a conflict between the democratic will of the people and the interests of the financial markets," he tells me earnestly, leaning forward over his antique desk.

He believes if Europe is not about democracy then the European project means nothing.

Iceland ignored the dire warnings of disaster from the ratings agencies and other institutions, says the Icelandic president, and the country is doing OK.

The implication is clear - other countries should follow the Icelandic example.

But Iceland had a key weapon in its armoury that is not open to the indebted eurozone nations - Iceland had its own currency, the krona. And, when the banks collapsed, the krona did too.

That is a key reason why Reykjavik is now so busy. Prices have effectively halved for most tourists. From being one of the most expensive cities on earth, Reykjavik has become, well, just a bit pricey.

But, as Gunnar, the taxi driver who drove me back from the presidential mansion explained, the collapse in the krona has cost many Icelanders dear.

Virtually everything here is imported and when the currency devalued, prices for everything from cars, to building materials, to food, soared. And at the same time wages fell.

It has been a very painful squeeze, Gunnar says, made considerably worse by the fact that during the boom years many Icelanders were encouraged to take loans in foreign currencies and now they have doubled - sometimes even tripled - in value too.

"I'll never pay my loans back," Gunnar tells me. "Better just to walk away from it - let them have my house."

Gunnar seems resigned to the loss but he is just one of thousands of Icelanders in a similar situation. In a modest office on the outskirts of Reykjavik I met another of them, Guomundur Andri Skulason.

Mr Skulason believes Iceland's financial problems are far from over. He is much less sanguine than Gunnar. He set up an Association of Debtors to fight for debtors' rights.

Mr Skulason quotes central bank figures showing that 25,000 households are in arrears on their debts - that is nearly a quarter of all households in Iceland. Last March the minister of finance put the figure at more like 40% of households, he tells me.

Mortgages and other loans are a huge part of the assets of the new banks that Iceland formed out of the wreckage of the old.

Mr Skulason believes that when the Icelandic people realise that they can never pay off their debts they will - like Gunnar - just walk away from them. Then the real reckoning will come.

"Don't believe that Iceland has escaped its problems," he says. "This country and its banks are still bankrupt."

Back in town I wander up a windswept hill in the centre of Reykjavik to look at the magnificent statue of Ingolfur Arnarson, Iceland's first settler. He stands tall in full Viking regalia up against the prow of his longship, a huge sword by his side.

Once he would have had a clear view away over the fierce waters of the north Atlantic, out towards the coast of Greenland. Not any more.

The mighty Viking now stares down upon a square black fortress of an office block. This ugly building houses the Icelandic central bank.

It seems that, despite Iceland's best efforts, there is no easy way to escape the debt trap. Ingolfur's Viking vigil over the central bank is, I reflect, perhaps more appropriate than it first seems.

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This appears to be a transcript of the From Our Own Correspondent broadcast last Saturday.

What this indicates to me is the danger of letting unregulated overseas banks operate a retail banking business in your country without any form of security. Because Iceland is an independent country with an independent currency and with enough in the way of natural resources to make autarky just about possible (at least in the short term), it had the option of simply walking away from its banks' debts. What this says to me is that whenever a bank based in a country in a similar situation wants to start up a retail banking business in Britain again, we need to think in terms of safeguards, e.g. requiring it to keep tangible assets in the UK (property and/or gold, for example) equivalent to a significant proportion of the deposits from UK citizens that it holds, which can be seized if it goes bust. As things are, short of declaring war on Iceland and occupying the place (an enterprise on which UK PLC would make a net loss anyway), there appears to be sod all that we can do about this.

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I think that care is needed as if everyone did an Iceland the whole system might be brought down. However there is scope for smaller countries in similar circumstances. I read an interesting analysis which pointed out the potential gains for Ireland from doing this.

It must be more and more tempting for Ireland to take Iceland’s route and simply default

http://t.co/kGhOeZS

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When Iceland said NO to bailing out the bankers. Senior members of Icelands parliament were told, at the peak of the pressure, by the IMF, that if Iceland did not give in, and bail out the bankers, they only had three weeks of food left, and the entire country would face mass starvation, as the IMF would see to it that food imports would stop from the continent.

Thats testament from the Icelandic politicians. Never reported by our Mainstream Media of course]

Its a war. The people versus the Banks. And the sooner our [vested interest BBC] Mainstream Media wakes up to that fact, the better.

Ireland should look upon Iceland as an example, and voluntarily default.

It does not need borrowed money from Europe, to survive. Ireland and other PIIGS should collectively tell the bankers to f"rk off. And never borrow money again. If they do not, then you are making the problem even bigger. It becomes an issue of Sovereignty, as the Greeks will tell you. The original democrats!

Ireland can create their own currency as a sovereign nation.

Reject the Euro.

Withdraw from the Euro.

Print Sovereign Irish money without debt.

Pay off Irish bondholders with Irish money. [if they dont like that. Tough.]

Stop Fractional Reserve lending.

Banks only allowed to lend money they have. [The banks literally own the Irish government, as the Irish government borrows counterfitted money from the banks!! And who allows this legalised counterfeiting, to continue?!...Yep! The Irish governmnet!! Insanity]

Edited by Milton

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The world can take one iceland not more than one. ;)

There have been 200 defaults by countries this century, so that is obviously bull

Lenders made stupid decisions and they should just have to pay the price for them

Ireland is going to default, probably Spain, Portugal and Italy too

The reason they haven't so far is that a lot of the lenders are German, French and British banks

If these countries defaulted these banks would be shown to be insolvent again

People might wonder how British banks alone managed to pay £38bn of bonuses between 2008-2011...

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When Iceland said no to bailing out its bankers, it reneged on its international obligations, because it failed to regulate those bankers in such a way as to prevent them from running up debts overseas in Iceland's name.

The anti-bank lobby can't have it both ways. Either you take the view that banks are purely private, institutionally and financially separate from the institutions of government in their host countries; in which case anyone, anywhere in the world who invests in them does so on a caveat emptor basis; or you take the view that banking should be a regulated industry in which national governments are supposed to prevent the banks operating in their jurisdiction from operating in a dangerous way (in the same way, for example, as national civil aviation authorities are supposed to prevent airliners registered in their territory from flying overseas in an unsafe condition), in which case those governments have a duty to step in if things go wrong. Iceland tried to have its cake and eat it. It was quite happy about the regulation when it came to taking taxes from the banks when the going was good, but when things went bad they want to walk away from their liabilities.

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When Iceland said no to bailing out its bankers, it reneged on its international obligations, because it failed to regulate those bankers in such a way as to prevent them from running up debts overseas in Iceland's name.

The anti-bank lobby can't have it both ways. Either you take the view that banks are purely private, institutionally and financially separate from the institutions of government in their host countries; in which case anyone, anywhere in the world who invests in them does so on a caveat emptor basis; or you take the view that banking should be a regulated industry in which national governments are supposed to prevent the banks operating in their jurisdiction from operating in a dangerous way (in the same way, for example, as national civil aviation authorities are supposed to prevent airliners registered in their territory from flying overseas in an unsafe condition), in which case those governments have a duty to step in if things go wrong. Iceland tried to have its cake and eat it. It was quite happy about the regulation when it came to taking taxes from the banks when the going was good, but when things went bad they want to walk away from their liabilities.

Iceland was too small to be able to bail out its banks

Ireland is too small to be able to bail out its banks

Switzerland is too small to bail out its banks

UK is too small to bail out its banks

Cyprus is too small to bauil out its banks

This should be pretty obvious to anyone who might think about lending to said banks

They take the risk because they want to lend

If it goes wrong they pay

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Back in town I wander up a windswept hill in the centre of Reykjavik to look at the magnificent statue of Ingolfur Arnarson, Iceland's first settler. He stands tall in full Viking regalia up against the prow of his longship, a huge sword by his side.

Ingolfur Arnarson would cleave a banker's skull in two if they tried to foreclose on his lands. The Icelanders kept some of that Viking spirit and so far have been the only ones with enough balls to just default. Ireland on the other hand eagerly signed away their sovereignty to become longterm debt peons for European banks.

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If due process had been applied, then surely the banks would have been found guilty of fraud, grand larceny, and other crimes. Would the same court who found the bankers guilty, also have forced the population to pay them back? I doubt it.

It was not so long ago, that individuals found guilty of these same offence's, on an infinitely lesser scale, would have been killed.

People might wonder how British banks alone managed to pay £38bn of bonuses between 2008-2011...

Yet ours have been rewarded. At our expense. By our elected politicians.

Edited by Milton

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Ingolfur Arnarson would cleave a banker's skull in two if they tried to foreclose on his lands. The Icelanders kept some of that Viking spirit and so far have been the only ones with enough balls to just default. Ireland on the other hand eagerly signed away their sovereignty to become longterm debt peons for European banks.

Until about 65 years ago the Icelanders lived in abject poverty as a colony of Denmark

There is a quite famous novel called Independent People by nobel prize winner Halldor Laxness about life was like at that time...not fun

I don't think they were keen to live in poverty again again as a colony of some German banks...

...seems a lot of Greeks and Spanish have recent memories of dictatorship and are equally keen on the ECB...

The fact is that the Northern Europeans are a lot less rich than they pretend to be becasue their banks made a lot of bad loans to Southern Europe....now they want to force Southern European voters to bail them out...

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I think that care is needed as if everyone did an Iceland the whole system might be brought down. However there is scope for smaller countries in similar circumstances. I read an interesting analysis which pointed out the potential gains for Ireland from doing this.

http://t.co/kGhOeZS

the system IS already down.

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Until about 65 years ago the Icelanders lived in abject poverty as a colony of Denmark

There is a quite famous novel called Independent People by nobel prize winner Halldor Laxness about life was like at that time...not fun

I don't think they were keen to live in poverty again again as a colony of some German banks...

...seems a lot of Greeks and Spanish have recent memories of dictatorship and are equally keen on the ECB...

The fact is that the Northern Europeans are a lot less rich than they pretend to be becasue their banks made a lot of bad loans to Southern Europe....now they want to force Southern European voters to bail them out...

the fact is the people are not rich at all thanks to the banks...get rid of the banks, ie default, and A: Southern Europe can get on with life, and B: Northern Europe can get on with life...the losers?..bankers and politicians

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When Iceland said no to bailing out its bankers, it reneged on its international obligations, because it failed to regulate those bankers in such a way as to prevent them from running up debts overseas in Iceland's name.

The anti-bank lobby can't have it both ways. Either you take the view that banks are purely private, institutionally and financially separate from the institutions of government in their host countries; in which case anyone, anywhere in the world who invests in them does so on a caveat emptor basis; or you take the view that banking should be a regulated industry in which national governments are supposed to prevent the banks operating in their jurisdiction from operating in a dangerous way (in the same way, for example, as national civil aviation authorities are supposed to prevent airliners registered in their territory from flying overseas in an unsafe condition), in which case those governments have a duty to step in if things go wrong. Iceland tried to have its cake and eat it. It was quite happy about the regulation when it came to taking taxes from the banks when the going was good, but when things went bad they want to walk away from their liabilities.

It says in the icelandic constitution in big thick black print "if we referendum on stuff, we can cancel anything" so they didn't renege on any obligations at all.

All the people who dealt with them thinking there was some other basis for the trade than public opinion and whim were negligent.

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If due process had been applied, then surely the banks would have been found guilty of fraud, grand larceny, and other crimes. Would the same court who found the bankers guilty, also have forced the population to pay them back? I doubt it.

It was not so long ago, that individuals found guilty of these same offence's, on an infinitely lesser scale, would have been killed.

Who do you think we are China?

Yet ours have been rewarded. At our expense. By our elected politicians.

Because the politicians are corrupt and have been bought by those people, therefore shortly after they banksters are crucified in Wembley the politicians should also be crucified as well.

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It says in the icelandic constitution in big thick black print "if we referendum on stuff, we can cancel anything" so they didn't renege on any obligations at all.

All the people who dealt with them thinking there was some other basis for the trade than public opinion and whim were negligent.

'cept we don't have a constitution, some theories suggest the Magna Carta is actually still in force as the governments since it was written have never actually had the power to revoke the rights it gives...

Still this is moot as one party happens to have all the guns.

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It says in the icelandic constitution in big thick black print "if we referendum on stuff, we can cancel anything" so they didn't renege on any obligations at all.

All the people who dealt with them thinking there was some other basis for the trade than public opinion and whim were negligent.

this is indeed the nature of a default...the lender DOESNT get back what he hoped for.

How many PC firms have busted int he last 20 years, only for a fresh pheonix to arise, same Directors, very similar name, only for the self same losing suppliers to offer credit and stock again..and again and again.

This loss of face nonsense is just that...nonsense. lenders want to lend...specially today, where it matters not if you make a bad loan...the taxpayer will refund you.

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'cept we don't have a constitution, some theories suggest the Magna Carta is actually still in force as the governments since it was written have never actually had the power to revoke the rights it gives...

Still this is moot as one party happens to have all the guns.

It's in the constitution via common law - Necessitas non habet legem "NECCESSITY HAS NO LAW."

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It's in the constitution via common law - Necessitas non habet legem "NECCESSITY HAS NO LAW."

Except common law was recently removed.... by a constitutional change... backed with guns.

Though Injin world logic may work on paper, when faced with an AK47 jabbed between your shoulder blades it fails rather quickly.

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I think there will be a massive Sovereign debt jubilee of sorts. Many little countries wont like it - but if the big boys with all the weapons say it will happen - then it will happen.

How - I have no idea. However I think it will happen.

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I think there will be a massive Sovereign debt jubilee of sorts. Many little countries wont like it - but if the big boys with all the weapons say it will happen - then it will happen.

How - I have no idea. However I think it will happen.

and a jubilee is?.......and if the politicians are to be believed...how could it work....ah I know...massive DEFLATION.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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