By The Staff at AFP
In 2008, the economy of
Iceland, population 320,000, nearly collapsed due to massive fraud
and mismanagement by three of its leading banks. In the ensuing
years, rather than bail out banks, the country’s people forced
their government to arrest
the banksters and move toward a more fiscally
responsible, nationalistic approach to the economy. Since that
time, Iceland has experienced economic growth and improvement of
people’s lives. AMERICAN FREE PRESS was pleased to report that
story and decided it is time to revisit the situation and learn what
has become of the economic miracle.
In reality, it has not been
all happy times for the island country. The Icelandic people have
suffered, but the country continues to show progress despite taking a
path that the international bankers claimed would lead to ruin for
all.
Inflation
in Iceland had been as high as almost 20% and is now around 4%.
Unemployment has been halved, below 5%. Some debt relief was provided
to the financial sector, but nothing like it was in the U.S. and
Europe. Currency
controls were put in place, which have somewhat stabilized
Iceland’s currency, the krona, by forbidding foreign investment by
Icelandic companies and preventing foreigners from removing their
money from the island nation. Government spending was reduced.
Unfortunately, the krona has
lost as much as 60% of its value, resulting in massively higher costs
of goods and services, and taxes are punishingly high. The economy
has shown growth, but inflation is still in the country.
In addition, because capital
has been locked into the country for over four years, a real estate
bubble has developed, fueled primarily by the captive foreign assets.
As for debt relief, mortgages
in Iceland can be a homeowner’s nightmare and a usurer’s dream.
Icelanders are faced with the Hobson’s choice of taking out
property
loans which are indexed to either the rate of currency exchange
or the rate of inflation. In both cases, it is not the interest rate
that changes, but the amount of the principal itself. If someone
borrows 100,000 kroner under the second, saner scenario, and
inflation is 10%, he will owe 110,000 kroner at the end of the year.
This makes it very difficult to pay off mortgage debt and own
property but is a boon to the bankers.
According to Baldur
Bjarnason, who has collected a vast amount of research on
conditions in Iceland, not only has that country not expelled the
IMF, the IMF offered a limited bail out to the nation whose
government then “went further along the libertarian axis than the
IMF recommended.”
One of the highlights of the
Iceland story has always been the country’s alleged willingness to
punish and imprison the wrongdoers who bankrupted the country.
Certainly, the people demand it, but the facts are disappointing.
Some of the bankers were put on trial, as was the former prime
minister, Geir
Haarde. Some were convicted, and then served only a fraction of
their sentences. Haarde was found guilty of a technical charge, but
be received no fine or prison sentence. Two CEO’s and 14 other bank
employees were indicted
in March, so hope for progress remains.
It is true that Iceland
nationalized the banks. But then it privatized them again. End
result: two out of three of the collapsed institutions now belong to
the creditors. The creditors then sold out to “foreign hedge and
vulture funds,” says Bjarnason, so the banking system is no longer
controlled by Icelanders. By re-privatizing the banks so quickly, the
Icelandic government may have destroyed its chance for true banking
reform and punishment of the criminal perpetrators of the financial
collapse.
The good news is the Icelandic
people don’t seem to be taking any of this lying down. Voters in
Iceland’s national elections in April tossed out the center-left
Social Democrat government coalition, even though it had successfully
stabilized the economy to some degree. The center-right Independence
and Progressive parties took over 60% of seats in the Icelandic
Parliament, promising to “forgive or renegotiate [many mortgages]
and to put an end to four years of austerity by lowering taxes,
ending capital controls and stimulating foreign investment,”
according to a New York Times
report.
In light of the ups and downs
in Iceland, the financial vision of Hungary, which AFP recently
reported, must remain uppermost in our minds. It is a beacon
beckoning toward freedom and a model for all nations.
Readers can be assured that
AFP will keep them informed of developments there, as well.
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