In 2008 Iceland's banks fell, now nearly four years on their economy is beginning to recover. As Ireland realizes their taxpayers cannot bear the high-price of the banks' misdeeds the New York Times in an editorial suggests that Ireland learn a lesson from Iceland .
During the boom times Iceland failed, like Ireland to regulate it's banks actions. By 2008 the banks were ten times the size of the country's economy. The difference is that Iceland refused to take on the bank’s debts and forced the creditors to take losses and share the pain.
The New York Times says it looks increasingly like Iceland got it right, Ireland got it wrong.
The editorial observed "The government of Iceland wasn’t intentionally daring or smarter than others. It couldn’t afford to bail out its banks, so it let them fail. It transferred domestic deposits and loans, at a discount, into new banks, with some $2 billion in money from taxpayers. And it left the banks’ foreign assets and foreign debts behind."
Ireland took the opposite path as the editorial points out. To date The Irish Government has already injected $66.3 billion into the failing banks and it is expected that they will need to contribute another $34.3 billion in order to cover the banks losses of over $100 billion
In Iceland however, it was a very different story as the shoots of economic recovery appear .
The New York Times believes this may have been the right course and states about Iceland .
“Still, it is pulling through. The I.M.F. expects it to grow 2.5 percent this year. Unemployment is falling. Compare its case to Ireland, where the government put the banks’ debts on the shoulders of taxpayers. Its economy shrank at least as much as Iceland’s, and it is recovering more slowly. The I.M.F. expects Ireland’s debt to peak at 125 percent of G.D.P. in two years. That looks optimistic.”
Finally the Times notes that “insurance on Iceland’s government debt is cheaper than on debt from Ireland,Greece or Portugal.”