Opinion

The Great Debate

from James Saft:

Icelandic mulishness wins the day

Iceland's remarkable return to growth shows once again that in this crisis the best policy is often the one that will make international partners most angry.

Having been reviled and chastised when it refused to make good the outsize debts of its banks, Iceland this week capped a striking turnaround when it announced that its economy expanded by 1.2 percent in real terms in the most recent quarter, its first such rise in two years.

This is in stark contrast to Ireland, whose pliability and inability as a member of the euro zone to act unilaterally leaves it with a still crashing economy which must service ever more debt by making ever deeper cuts to public spending.

Iceland, which sailed into the crisis in 2008 as essentially a small fishing fleet with a massive hedge fund attached, looked its predicament square in the eye and followed a set of policies seemingly designed to tick off both its friends and enemies, doing its small but mighty best to beggar its neighbors by letting its currency crash, imposing capital controls and, crucially,  refusing to make whole the global creditors of its three failed international banks.

While an International Monetary Fund and multilateral package was eventually agreed, and a deal with Britain and the Netherlands over debts from Icesave Bank are currently being hammered out, Iceland's leaders, at least the current ones, seem convinced that making bank creditors share its pain was the right course.

from The Great Debate UK:

Why the Icelandic volcano could herald even more disruption

Andy_Hooper- Dr Andrew Hooper is an Assistant Professor at Delft University of Technology and is an expert on monitoring deformation of Icelandic volcanoes. The opinions expressed are his own. -

The unprecedented no-fly zone currently in force across much of Europe has already caused the greatest chaos to air travel since the Second World War.  Thousands of flights have been cancelled or postponed with millions of travel plans affected.

The economic consequence to our ‘just-in-time’ society is incalculable at this stage given the disruption to holidays, business plans and indeed the wider business supply chain.  However, the global cost of the disruption will surely ultimately result in a cost of billions, with the share price of several airlines in particular already taking a hit.

Icelandic, Greek sagas show sovereign risks

– James Saft is a Reuters columnist. The opinions expressed are his own. –

Developments in cash-strapped Iceland and Greece nicely illustrate two themes for 2010: sovereign risk and financial balkanization.

Iceland is balking at crushing terms demanded as part of its making whole overseas depositors in its ruined banking system, while Greece is involved in a game of chicken with the euro zone authorities over how, when and with whose assistance it heals its fiscal difficulties.

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