Here we go again.
Yet another Icelandic parliamentarian peacocks his economic acumen. We, the very best, welcome self-styled, Left-Green, economic-Buddha-guru Steingrímur J. Sigfússon, former Minister of Finance and current Minister of Fisheries, Agriculture and Economic Affairs, to our vainglorious club. Here’s your badge, mate.
In a Financial Times (FT) posted on August 20, Steingrímur spurts forth an amazing theory that leaders in the Eurozone and Britain might fare better in dealing with their respective crises if they were to take a leaf out of his gilded tome (sorry, I mean the Icelandic government’s). “Many lessons have been learnt,” he says. “The Icelandic government has pursued the politics of social and economic inclusion.”
And what the deuces is “social and economic inclusion”?
One definition I came across reads: “To be inclusive of citizens’ views and needs in services and programmes, and to support the positive visions and aspirations of the common people.”
Steingrímur continues: “Those on higher incomes have contributed more in absolute terms through the adoption of a progressive system of taxation, while those on lower incomes have been sheltered. […] The outcome has been as intended: a more equitable net income distribution.”
Is Steingrímur really the Robin Hood he claims/intends to be?
In an open letter to FT entitled, “Iceland must not celebrate too soon,” Robert Wade, professor of political economy at London School of Economics, and Dr. Silla Sigurgeirsdóttir, lecturer in public policy at the University of Iceland, shed a measure of induced balance on Steingrímur’s so-called lessons for the Eurozone.
Where Steingrímur suggests that his “innovative” tax policies have evened out the distribution of Icelandic wealth (and thereby created a stable economic model), Robert and Silla point out that “banks benefited by having more secure flow of repayments and by not having to manage and pay taxes on foreclosed assets.”
Additionally, Robert and Silla point out that it was the International Monetary Fund (IMF) and their denizens of experts who put forward the absolute and equally pointed plan to ease the Icelandic economic crisis. Achievements were not, they intimate, due to Steingrímur’s brazen genius (or anyone else in the Icelandic government for that matter).
Perhaps Steingrímur’s sudden interest in international renown was prompted by Bloomberg’s August 13 interview with Daria V. Zakharova, IMF mission chief to Iceland, who praises Iceland’s “surprising” recovery: “The fact that Iceland managed to preserve the social welfare system in the face of a very sizeable fiscal consolidation is one of the major achievements under the program and the Icelandic government.”
Fisher Investments, one of the world’s largest independent investment advisory firms, responds to the interview on iStockAnalyst.com by pointing out that the IMF “ignores a key factor to Iceland’s recovery.”
It continues: “At the very least, this likely means the IMF overstates the case for eurozone nations’ heeding Icelandic lessons. For starters a key driver for Iceland’s recovery was the weakening of its currency […] you can’t devalue a currency and expect only positive results. While a weak currency makes export cheaper, it also makes imports more expensive.”
Fisher also notes that “long term, ongoing currency devaluation isn’t a sure-fire winner.” It goes on to suggest that any lessons on economic recovery are better learned elsewhere than in Iceland.
And by the way, since there’s more than $8 billion in offshore krónur at stake, Iceland’s capital controls are not going away any time soon. Iceland’s Central Bank has made it common knowledge that they expect to ease at the earliest in 2015. Meanwhile interest rates are continuously being raised (there have been five hikes since this time last year alone). This means, of course, that cost of goods will surely remain on the rise.
Back in FT, Wade and Silla highlight the dangers inherent in Steingrímur’s premature “Ob-La-Di, Ob-La-Da” fiesta. A number of promised and crucial institutional reforms have yet to be realised:
one) the people’s assembly constitution
two) civil service reforms
three) a revised fishing quota system
four) the establishment of an independent national institute of economic affairs
Iceland’s next election is to occur in 2013 and there’s not a whole hell-of-a-lot of time to get everything in due order. In other words, hold the champagne on ice(land).
Through all of this, I had to ask myself the question, what prompted Steingrímur to put forward his half-baked theories in the FT in the first place? I can really only hypothesise that he is vying for a major consulting position within the Eurozone when his term runs out. Or, perhaps along with his band of merry economic geniuses, he’s considering opening his own School of Social and Economic Inclusion right in the heart of debt-laden Reykjavík? I for one would like to see that fancy Magna Carta.