June 20, 2011

Whatever Happened to Iceland?

A few years ago, Iceland's fall was all the rage and 60 Minutes did an Armageddon-like scenario concerning their economy, but now you rarely hear anything about them (except in precincts I rarely frequent).

Well turns out Iceland's fine, thank you very much:
Today, Iceland is recovering. The three new banks had combined profit of $309 million in the first nine months of 2010. GDP grew for the first time in two years in the third quarter, by 1.2 percent, inflation is down to 1.8 percent and the cost of insuring government debt has tumbled 80 percent. Stores in Reykjavik were filled with Christmas shoppers in early December, and bank branches were crowded with customers.
And even during the worst of it, in 2009, the Icelanders seemed content.

Meanwhile, years ago watching European countries fashion a unified currency without a democratic underpinning seemed crazy. It was:
I sometimes think Kohl, Mitterrand, Delors and co instinctively knew that this would happen.

They probably calculated that if only they could achieve monetary union, the euro would create such strains that the de facto creation of a United States of Europe would be impossible to resist. The trouble is that there is just no democratic mandate for anything of the kind.

As Angela Merkel is constantly obliged to point out, the German people would never have supported joining the euro if they had been told that they would become the guarantors of the debts of Greece. The Greeks would never have gone into the euro if they thought it meant the complete surrender of their economic independence and the destruction of their standards of living. As for the UK taxpayer, none of us believed that a condition of EU membership was the payment of billions in ransom money to stop the euro blowing up.

For years, European governments have been saying that it would be insane and inconceivable for a country to leave the euro. But this second option is now all but inevitable, and the sooner it happens the better. We have had the hamartia - the tragic flaw in the system that allowed high-spending countries to free ride on low interest rates. We have had the hubris - the belief the good times would never end. We have had nemesis - disaster. We now need the anagnorisis - the moment of recognition that Greece would be better off in a state of Byronic liberation, forging a new economic identity with a New Drachma. Then there will be catharsis, the experience of purgation and relief.

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