Everyone Loves An Underdog

So, to coin an Olympian metaphor: Is Iceland really bouncing back?
Short answer: Maybe yes, maybe no. They sure are good at handball, but they did lose in the quarterfinals.
A central theory has been tendered in the international media these last months: Iceland’s economy is faring better than the Eurozone and has emerged from the grimmest of doldrums, basically due to the fact that its people are proud, resilient and self-reliant.
This theory also appears to be central to President Ólafur Ragnar Grímsson’s international PR campaign. Oh, and apparently handball helps too.
In a TIME magazine article, “The Most Important Team in the Olympics? Why, It’s Icelandic Handball,” Ólafur explained the impact that the Icelandic handball team winning the silver medal at the Beijing Olympics had on Iceland (bear in mind the Beijing Olympics were just before the crash of 2008): “A nation, after an initial shock, decided to move forward, and the handball team played a big role in that.”
Of course a silver medal boosted morale, as did a second place in the Eurovision Song Contest the following year—and let’s not forget Eyjafjallajökull’s fateful eruption. There’s no doubt that Iceland had the world’s attention. And, of course, distractions are always good during catastrophes.
So, thank you Icelandic handball team. Thank you Jóhanna and Óskar Páll for “Is It True?” and above all, thank you Eyjafjallajökull for helping to boost tourism.
In a New York Times article, “A Bruised Iceland Heals Amid Europe’s Malaise,” Sarah Lyall writes: “analysts attribute the surprising turn of [Iceland’s] events to a combination of fortuitous decisions and good luck, but caution that the lessons of Iceland’s turnaround are not readily applicable to the larger and more complex economies of Europe.”
Meanwhile Financial Times and Bloomberg report that Iceland is not only emerging as a pioneer in banking reforms but also as a model for the inquiry into the misdeeds of the banking sector in general. “Europe should look to Iceland to get a sense of how much damage an overgrown banking system can wreak,” Straumur Investment Bank’s CEO Pétur Einarsson tells Bloomberg.
So who’s right? It’s debatable. No one really seems to be in agreement and for the most part, it’s all depends on when and how you measure success.
While Paul Krugman, of course, still believes that Iceland is an economic miracle to be followed, Econmatters, a website comprising of team of investment analysts, says: “Iceland is definitely NOT the ‘fiscal role model that Krugman intends for people to believe,’ adding “Iceland had to raise its interest rate five times since last August to contain inflation.”
The Peterson Institute also refutes Krugman noting that “measured over a longer period, Iceland significantly underperforms that of the Baltic countries.”
This is echoed by the Economist, which adds: “Iceland has not done significantly better than Ireland despite the fact that Ireland lacks a currency to depreciate.”
And on the subject of currency, Econmatters questions, “…if currency devaluation is such an economic miracle cure, why is Iceland looking to adopt the Euro or Loonie? And there’s a reason why Greece opted to still stay in the Euro.”
More ominous still is what Jón Danielson, a professor at the London School of Economics, tells the New York Times: “…both the IMF, which bailed Iceland out during the crisis, and the government had a vested interest in painting a positive picture of the situation.”
And with a heavy dose of measured good sense, he goes on: “When I hear people say that everything is fine, it’s coloured by P.R. They have clearly stabilized the economy and gotten out of the deep crisis,” he says, “but they have not yet found a way to build a prosperous country for the future.”
But in the scheme of the rest of the world, could Iceland’s fortitude and good luck really be a potential role model for other crisis-struck economies, as Straumur’s Pétur Einarsson seems to believe? Might the Icelandic underdog actually win the day, perhaps even pave the way?
It’s all so confusing, as the ‘experts’ appear to be at odds with each other. But perhaps we shouldn’t hedge all our bets on the Icelandic handball team.