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Ratings agency raises Iceland's credit rating
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17-02-2012 6:36pm#1
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Our economy shrank my more than theirs in each of 2008 2009 and 2010 overall.
Their economy grew in 2011. They have no banks and associated professionals in places like Dublin to suck the life out of the real economy which is why they are growing and stable. They have lower unemployment than we do.
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This is good news for Iceland. However, as a country can a comparison be made with Ireland?
My non-economic opinion.
Iceland, being off the main trade routes, seems to rely on Fishing and Tourism (ignoring EVE
).
Ireland, has the Agri-sector and Tourism but also has a multinational base encompassing IT, pharam etc.
So defaulting on the debts (leaving aside the wrong/right of that) might have lessened multinational confidence in Ireland, hence making the situation worse.0 -
It looks like Iceland is making a fast recovery even though they burnt bond holders. But will future bond holders invest so quickly even with the ratings improvement?
http://m.eircom.net/news/article/?type=breaking&storyid=20353500
And if I remember correctly Fitch rate us at BBB+ which has us two notches above Iceland. So Iceland burned the bondholders, sent its economy into a bigger crash than ours and is still two notches below us in the credit rankings. Must follow them all right.
Well it's all too late now and therefore hypothetical. However to continue your line of thought...you're leaving a significant bit out of the equation: Iceland is now not sitting on a sh1tload of socialised bank debt.
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I'm not an economist, but I really don't think a comparison with Iceland is feasible.
Iceland is about 100,000 square km
Ireland is about 80,000 square km
Icelands population is about 320,000 people.
Irelands population is about 6, 020,000 people.
Iceland has abundant hydro-electric and geothermal power, Ireland has no geo-thermal power and for an atlantic island, its hydro-electric is lacking.
So to sum up, Iceland has 20% more land but only 5% of the population, as well as some free energy from its geo-thermal plants, a lot of cheap energy from its hydro-electric plants.
The small puny Ireland, looks like goliath when compared to the considerably small but rich, Iceland.
So I ask, why is this comparison still made?
Nothing to do with size - after all size doesn't matter It's the action they took.
http://www.bloomberg.com/news/2011-02-01/iceland-proves-ireland-did-wrong-things-saving-banks-instead-of-taxpayer.html
Great article here about it. Very detailed. It recognises the problems that could have faced Ireland had it taken this route, but it's how Iceland managed elements of the problem - so it's not about comparing countries, it's about a specific problem and different ways it was handled.0 -
Nothing to do with size - after all size doesn't matter It's the action they took.
http://www.bloomberg.com/news/2011-02-01/iceland-proves-ireland-did-wrong-things-saving-banks-instead-of-taxpayer.html
Great article here about it. Very detailed. It recognises the problems that could have faced Ireland had it taken this route, but it's how Iceland managed elements of the problem - so it's not about comparing countries, it's about a specific problem and different ways it was handled.
The ability to devalue is crucial in any Ireland/Iceland debate. It is much more than one of several elements involved. If all the people in Ireland agreed to a 20% cut in their standard of living (by devaluation) our problems would be easily handled.
The Icelandic bank debt was 11 times GDP so the matter was easy for them - won't pay because can't pay.
In Ireland the cost to the State of the bank rescue was, apparently, €65 bn or less than 50% of GDP; relative to GDP then Icelands debt was 22 times greater than Irelands. The equivalent to Icelands potential debt
would be about €4,000 bn in Ireland. That's why comparison with Iceland is fatuous.
The bank debt contributes but by no means is the cause of our problems.0 -
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Scoffaw, thanks for that. But it really isn't hitting on the point I was making - are you saying that Iceland should have saved their banks? Would that have made their situation better?
It's worth noting also that a lot of the problems in Iceland are household debt - even taking into account inflation people were simply over leveraged, this is acknowledged in the article.
Look at the % of people in trouble - I would reckon that we could match or better those figures.
The problems outlined are problems you would expect with a crash, we will have the same problems but ours will be compounded by having to bailout the banking sector.
The proof of the pudding is in the eating - Iceland is back borrowing in the markets - we aren't and the earliest date for our return is 2013.
As to our public debt - we still don't know how much it is going to cost us. Each year we do a budget based on a set of figures plucked from the air and based on growth predictions that are quickly revised downwards within weeks - this years budget is already down the tubes and talks of a mini budget and a second bailout is rife.
Iceland is not out of the woods not by a long shot but they do not have the ghost of banks debt to contend with - we do.
Their step into the market is a sign of recovery.
It's worth noting also in that introduction - you could apply it absolutely to Ireland - we call it "wearing the green Jersey". 0 -
Scoffaw, thanks for that. But it really isn't hitting on the point I was making - are you saying that Iceland should have saved their banks? Would that have made their situation better?
It's worth noting also that a lot of the problems in Iceland are household debt - even taking into account inflation people were simply over leveraged, this is acknowledged in the article.
Look at the % of people in trouble - I would reckon that we could match or better those figures.
The problems outlined are problems you would expect with a crash, we will have the same problems but ours will be compounded by having to bailout the banking sector.
The proof of the pudding is in the eating - Iceland is back borrowing in the markets - we aren't and the earliest date for our return is 2013.
As to our public debt - we still don't know how much it is going to cost us. Each year we do a budget based on a set of figures plucked from the air and based on growth predictions that are quickly revised downwards within weeks - this years budget is already down the tubes and talks of a mini budget and a second bailout is rife.
Iceland is not out of the woods not by a long shot but they do not have the ghost of banks debt to contend with - we do.
Their step into the market is a sign of recovery.
It's worth noting also in that introduction - you could apply it absolutely to Ireland - we call it "wearing the green Jersey".
Completely unsubstantiated waffle. Does Iceland have a ~ 20bil current spending deficit? Do you even know anything about Iceland? Because it sounds like you really and truly don't.0 -
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Scoffaw, thanks for that. But it really isn't hitting on the point I was making - are you saying that Iceland should have saved their banks? Would that have made their situation better?
It's worth noting also that a lot of the problems in Iceland are household debt - even taking into account inflation people were simply over leveraged, this is acknowledged in the article.
Look at the % of people in trouble - I would reckon that we could match or better those figures.
The problems outlined are problems you would expect with a crash, we will have the same problems but ours will be compounded by having to bailout the banking sector.
The proof of the pudding is in the eating - Iceland is back borrowing in the markets - we aren't and the earliest date for our return is 2013.
As to our public debt - we still don't know how much it is going to cost us. Each year we do a budget based on a set of figures plucked from the air and based on growth predictions that are quickly revised downwards within weeks - this years budget is already down the tubes and talks of a mini budget and a second bailout is rife.
Iceland is not out of the woods not by a long shot but they do not have the ghost of banks debt to contend with - we do.
Their step into the market is a sign of recovery.
It's worth noting also in that introduction - you could apply it absolutely to Ireland - we call it "wearing the green Jersey".
Iceland is doing great, isn't it?
http://www.sedlabanki.is/?PageID=287&NewsID=3086
Look at that, inflation is 6.5%, well above the target of 2.5%. Imagine that hitting your pocket in Ireland, don't need increased taxes when inflation is robbing you like that. Oh, look, the same page has interest rates, the rates range from 3.75% to 5.75%, the latter being the overnight rate. Quite a distance above the ECB rate of 1%, wouldn't be just Permanent TSB customers crying about interest rates, would it, they would be looking back and thinking what a bargain I had way back when we were in the euro.
Now you have said that Ireland cannot go back into the bond markets until our yields drop below 3.7% because that is the bailout funding. Aren't we lucky that we have partners to help us out like that because look at the yields on Icelandic bonds.
http://www.bonds.is/default.aspx
Only one of them is below 3.7% and then only marginally at 3.61%. Good old Iceland, high interest rates, high inflation rates, high bond rates, wow they are so much better off than us.
I don't get the "we have to be back in the markets" bit. If we can continue to get money at 3.7% from a bailout while the price of going back to the markets is higher, why should we go back to the market? A second bailout would be cheaper. There may be some optics required in that maybe some of our financing should come from the market but whatever is cheapest is best as far as I am concerned.0 -
Scoffaw, thanks for that. But it really isn't hitting on the point I was making - are you saying that Iceland should have saved their banks? Would that have made their situation better?
God, no! I'm just saying that they didn't because they couldn't. If their banks had been the same size as ours relative to their GDP, though, they probably would have saved them. So they couldn't have done what we did, and, in a sense, we couldn't have done what they did, because they, unlike us, had no option at all.It's worth noting also that a lot of the problems in Iceland are household debt - even taking into account inflation people were simply over leveraged, this is acknowledged in the article.
Look at the % of people in trouble - I would reckon that we could match or better those figures.
I don't think so - we have about 10% of mortgages in arrears with no write-downs, they may have 35% of households technically insolvent with write-downs. That's quite a difference.The problems outlined are problems you would expect with a crash, we will have the same problems but ours will be compounded by having to bailout the banking sector.
Well, no - our problems already include the bank bailout. The cost of the promissory notes, for example, have already been added to our public debt, even though we haven't paid them yet.The proof of the pudding is in the eating - Iceland is back borrowing in the markets - we aren't and the earliest date for our return is 2013.
If we manage a return to the bond markets in, say, early 2013, then the duration of our lockout from them will have been 2 and a bit years. Even taking the latest date for the start of Iceland's lockout - their IMF bailout in November 2008, although they hadn't issued bonds since late 2006 - Iceland's lockout is at least a year longer. So I'm not sure what sort of pudding that is.As to our public debt - we still don't know how much it is going to cost us. Each year we do a budget based on a set of figures plucked from the air and based on growth predictions that are quickly revised downwards within weeks - this years budget is already down the tubes and talks of a mini budget and a second bailout is rife.
Iceland is not out of the woods not by a long shot but they do not have the ghost of banks debt to contend with - we do.
Their step into the market is a sign of recovery.
It's worth noting also in that introduction - you could apply it absolutely to Ireland - we call it "wearing the green Jersey".
We do indeed have the ghost of the banks to contend with, and we'd undoubtedly be happier without them, but they don't form more than a quarter of our public debt.
One can of course argue that without the banks we wouldn't have been locked out of the markets (although other countries are)...but we would still have had a very high debt:GDP ratio, and we would still have borrowed 75% of what we've borrowed, but at rates higher than those provided by the EU & IMF. We would also, of course, have had far less impetus to tackle the very real problems in the Irish economy.
cordially,
Scofflaw0 -
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