In this election year, Americans cannot help but be exceptionally conscious of the major domestic economic issues that almost certainly will be critical in deciding whether Barack Obama or Mitt Romney occupies the White House next year.
Also, we’re constantly told that the economic situation in Europe, which at times appears to slide from one crisis to another, will surely influence our own economic situation. Will Greece pull out of the European Union? Will the euro survive as the common currency of 17 European nations? And what would be the consequences of these steps for the rest of us?
There seems to be no relief from all the bad news. If Wall Street has a few good days in a row, there’s a feeling — and ample evidence — they’ll be followed by a few (or more) bad days. Confidence is a rare commodity and dare we even trust those who express it?
All right, let’s pause to enjoy some genuine good news and hope it is contagious (and quickly, too). Consider Iceland, a small nation stuck out there in the North Atlantic, a nation that, most of the time, few of us have any reason to think much about. But right now it merits our scrutiny and gives us reason for hope, faint though it may be.
Just four years ago, Iceland was an almost total financial disaster. Yet it has repaid — early — many of the international loans it needed to survive. Its unemployment rate is around 6 percent and dropping. Iceland’s economy, a New York Times article reported Sunday, is expected to grow by 2.8 percent this year.
“Everything has turned around,” the owner of an expanding coffee shop chain told The Times. “When we told the bank we wanted to make a new company, they said, ‘Do you want to borrow money?’ We haven’t been hearing that for a while.”
This turnaround came about because of a combination of good decisions and good luck, financial analysts told the newspaper.
But, as if to validate the good news-bad news pattern, the analysts also warned that the lessons of Iceland’s turnaround may not apply to the much larger and more complex economies of Europe. (Note they said “may not” rather than “will not.”)
During its crisis, Iceland did many things different from its European counterparts, including letting its three largest banks fail rather than bailing them out. It made sure domestic depositors got their money back and granted debt relief to struggling homeowners and to businesses facing bankruptcy, The Times reported.
“Taking down a company with positive cash flow but negative equity would in the given circumstances have a domino effect, causing otherwise sound companies to collapse,” an economics professor at the University of Iceland told the newspaper. “Forgiving debt under those circumstances can be profitable for the financial institutions and help the economy and reduce unemployment as well.”
“We’re in a very comfortable place because the government has been very stable in fiscal terms and is making good progress in balancing its books,” said a Finance Ministry spokesman. “We are self-reliant and can borrow on our own without having to rely on the good will of our Nordic neighbors” (or lenders like the International Monetary Fund).
What happens in Iceland may not foretell what will happen in Europe or here. There are so many differences. But surely it is instructive that the leaders of one tiny nation have found the path back to prosperity even as larger countries continue to flounder. If there are lessons to be learned, let’s learn them.MORE IN Editorials
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