Words by

Marc Vincenz

Last month The Wall Street Journal (WSJ)’s Charles Forelle praised Iceland’s unprecedented emergence from economic catastrophe. He was keen to note how Iceland has come out smelling of roses, in particular when compared to her fellow European economic disaster areas, Spain, Ireland, Portugal and Greece.
Echoing these sentiments in his farcically entitled piece “Iceland Continues Economic Rejuvenation by Purging Financial Parasites,” American Free Press journalist Pete Papaherakles states: “Iceland’s recovery is a shiny example for countries like Greece, Ireland and Spain to follow.”
Aren’t all Icelanders Shiny Happy People.
Above all else, as has been touted willy-nilly across much international media, Pete says, “Iceland has proven that default was the best thing it could have done.” This works, as Charles Forelle makes clear, because “…Iceland let its banks fail, and made foreign creditors, not Icelandic tax payers, largely responsible for covering losses.”
In a wily comparison to Hitler’s Germany, Pete says: “History has proven that countries experience growth once they get out from under the parasitic burden of debt to the bankers. National Socialist Germany from 1933–1939 is a perfect example.”
What was their quintessential slogan? “ARBEIT MACHT FREI”?
In his own foray into Icelandic eco-mechanics, Forelle states: “Greece is edging towards a cataclysmic exit from the euro, Spain is racked by a teetering banking system, and German politicians are squabbling over how to put it all together.”
Despite the fact that your average Icelandic citizen appears to be oblivious/impervious to it, Iceland is in fact growing and unemployment is easing. Yet, where are the signs? Where are the symbols?
In another WSJ piece, Sarka Halasova points out: “What has largely changed Iceland’s fortunes is that it has a monetary flexibility and control that others don’t have.” Due to the excessively weak króna, exports have become extremely competitive. Quoted in the same article, Jamie Studdard of Fidelity Investments, notes that “[t]hey have their own currency [the króna], and that means they were able to make that classic emerging market-style currency devaluation that we saw in Asia in 1997, in Latin America throughout the 1980s…”  Remember Argentina?
Isn’t this all due to that classic seven-letter word synonymous with emerging markets? I’ll spell it out for you: d-e-f-a-u-l-t.
Both Reuters and WSJ tell us that Iceland’s little-big fishing industry is doing roaringly well. On May 3, Reuters points out that “[Icelandic] sailors are making double their pre-crisis pay, haddock sells to places like Boston and Brussels are booming, and unemployment is almost zero…”
Unemployment almost zero? Down from 7% to 6%, but hardly zero. Who takes those fracking statistics seriously anyway?
But, coming back to fishing: According to WSJ, “[Icelandic] fishermen now take home twice as many kronur for the same amount of fish…One captain in the VSV [a Vestmannaeyjar fishing company] made €243,000 last year…”
Minister of Economic Affairs and Fisheries Steingrímur Sigfússon rears his shiny head again and is proudly quoted as saying that Iceland’s present GDP is among the highest in all of Europe. “Sometimes it is easier to turn a small boat around than a big ship,” he chuckles to Reuters. Jón Bentsson, an Islandsbanki economist, is quoted by Reuters as saying: “What we were left with was quite manageable.” If you read between the lines, what I think he’s really saying is: “[Because we defaulted on most of our debts,] what we were left with was quite manageable.”
Without having to study chicken entrails, omens are already extremely auspicious: At the beginning of May, Iceland successfully sold a $1 billion bond and according, to Reuters, “Icelanders are getting work, going shopping and their house prices are rising.”
And yet: “Household debt [still] exceeds 200 percent of GDP…There is little trust in government…The Parliament has the support of only 10 percent of the public…” and consumer prices have risen by 26% since 2008. As WSJ states: “Iceland hasn’t fully emerged. Even after loan forgiveness, high household debt crimps many families. The employment gains in fishing have not spread everywhere. Practically everyone agrees Iceland must end its capital controls, though there is little agreement when and how.”
Canada’s National Post recently interviewed Swiss-based Icelandic economist, Heiðar Guðjónsson, who is a major proponent of Iceland’s adoption of the Canadian dollar. When asked how serious this proposal was, he said “[w]e need a solution within the next year or two…capital controls which are in place are stifling economic growth…otherwise Iceland actually faces defaulting on its foreign debt as early as 2016…”
A word for the wise, Steingrímur: Don’t turn that little boat around. Not just yet.