Writing for the Sunday Independent, Dan White explains why Ireland should have taken more cues from Iceland in back in 2008 regarding economic and financial choices.
Back in fall 2008, many considered Ireland and Iceland to be in very similar situations. “The joke in financial circles was that the only difference between Ireland and Iceland was a letter and six months,” writes White.
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“Remember when the Icelandics did the unthinkable and, unlike Ireland, told bank creditors to take a hike?,” writes White. “They also imposed capital controls and allowed the value of their currency to fall – the Icelandic krona has lost almost half of its value against the euro over the past five years.”
White explains how many people thought Iceland’s approach was “crazy.” Turns out it was just crazy enough to work.
White then goes on to recall how despite Ireland repaying “over €70bn of bank bonds at par,” markets have yet to regain confidence in the Emerald Isle. He describes the “experts” plans of actions as “catastrophically and utterly wrong.”
Ireland’s approach to fixing the situation has done nothing but hinder the economy, White points out, using the shrinking of the domestic economy as an example. Further, the domestic economy is only predicted to grow by 1.4 per cent in 2012 and 0.9 per cent next year. Other forecasters are taking a far more pessimistic view.
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Iceland, however, is not in the same boat. Economic growth is expected to be 3.1 per cent this year and 2.2 per cent in 2013. Perhaps more importantly, Iceland has managed to retain the trust of international markets, very much unlike Ireland.
“What these investors see is that,” writes White, “by burning the bank bondholders rather than taking these debts on to the national balance sheet, the Icelandic sovereign is in a far stronger position to repay any future debts.”
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By being “the good boys,” Ireland wound up being bounced into the EU/IMF bailout in 2010 and are now “still stuck with the banks' legacy debts and, a few carefully choreographed fund raisings by the NTMA notwithstanding, the State remains largely reliant on official lenders to fund its activities.”
Iceland is now preparing to re-enter the foreign markets, essentially getting the last laugh on Ireland.
“...by the end of 2013, there is no way the Irish sovereign can repay existing borrowings let alone any new loans it may seek to raise.”
“Maybe,” concludes White, “instead of being the good boys it's time we [Ireland] followed the Icelandic example and indulged in some Viking-style plunder and pillage.”
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