Why Ireland should look to Iceland for advice

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Iceland should be the example looked upon by Ireland as to what a strong, independent, and wiser country does in a banking crisis. 

You do not need to burden the people with the debt of what is after all a private company. Propping up (bailing out) such large scale failures is a waste of resources and would be much better spent on tackling debt.

So what happens if you let the banks fail? Take a look 

whippet

Ireland - EU
Iceland - Not in EU

gaius c

Thread advocating pouring petrol on the economy and flicking a lit match onto it so distressed borrowers at least get the satisfaction that everybody is in the **** with them #432798274

HurtLocker

I'm sorry. Once I saw Fox News I couldn't watch anymore.

View

This is the same Icelandic President who presided over Iceland when its economy collapsed, isn't it?

A collapse which has seen the Kronor virtually half in value against other currencies thus meaning an effective 50% cut in the income of all Icelanders (in non-Kronor terms). And which despite the OP's belief, Icelandic economists claim resulted in the second most expensive bank bailout in the OECD (because Iceland only let some of its banks collapse, it still had to bailout others to ensure it had a banking system).

Hands up anyone who'd volunteer to have their income halved (or that of their family)? After all, all we need is a simple act of the Oireachtas to impose that, nothing particularly fancy to prevent us doing so except perhaps we don't want to do so...

Did they not have to create new banks that cost 30% of GDP to capitalise?

Jumpboard

View wrote: »

This is the same Icelandic President who presided over Iceland when its economy collapsed, isn't it?

A collapse which has seen the Kronor virtually half in value against other currencies thus meaning an effective 50% cut in the income of all Icelanders (in non-Kronor terms). And which despite the OP's belief, Icelandic economists claim resulted in the second most expensive bank bailout in the OECD (because Iceland only let some of its banks collapse, it still had to bailout others to ensure it had a banking system).

Hands up anyone who'd volunteer to have their income halved (or that of their family)? After all, all we need is a simple act of the Oireachtas to impose that, nothing particularly fancy to prevent us doing so except perhaps we don't want to do so...

Not the Presidents fault, Prime Minister Geir Haarde On 8 April 2009, Geir stated that he was solely responsible for accepting controversial donations to the Icelandic Independence Party in 2006, ISK 30 millions from the investment group FL Group, and ISK 25 millions from Icelandic bank Landsbanki. 

They put hundreds of criminal charges against the banksters after the bubble burst.

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I wanted to add

"Many commentators blame reckless bank lending as the key cause behind the 2008–2012 financial crises in Ireland and Iceland. Our analysis, however, suggests that it was not the banks as such that caused the crisis but rather the boom-bust policies of the central banks of Ireland and Iceland. It is these institutions that set in motion the false economic boom and the consequent economic bust. While Iceland allowed its banks to go bankrupt, the Irish government chose to bail out its banks. So, in this sense, the Icelandic authorities did the right thing, and Iceland has consequently outperformed Ireland economically. We hold that despite this positive step, Iceland's authorities have introduced various welfare schemes that have curtailed the benefits of having let banks go belly up. Furthermore, both Ireland and Iceland have resumed aggressive money pumping, thereby setting in motion the menace of boom-bust cycles." 

Please see this piece:
http://www.mises.org/daily/6279/

I think the poor management crisis by the EU has hampered Irish Recovery. 

Iceland has shown a decent recovery BUT that has been painful medicine. You should take into account the volcanic eruptions.
 It needs to keep a nimble & quick approach in now alleviating it's credit controls that are now becoming a hindrance whilst managing the risk of capital flight from it's country. 2011 did see a 30% increase in investment in Ireland so there are chances of a long term recovery. 

The Icelandic experience confirms that the IMF is correct to be stressing the importance of speedily resolving Irish banks’ non-performing loans. Small- and medium-sized firms will not prosper with negative equity. There is only pain and no gain in postponing necessary write downs of household debt.

 http://www.youtube.com/watch?v=rNGL-gkC-OA&feature=youtube_gdata_player

Iceland's remedy is not perfect but it worked. 

vinylbomb

As opposed to Fox News.

http://www.reuters.com/article/2013/02/21/us-iceland-economy-idUSBRE91K0JN20130221

http://www.france24.com/en/20130425-despite-recovery-icelanders-still-feeling-effects-crisis

http://icelandicecon.blogspot.ie/2013/01/the-economic-truth-on-iceland.html

jamaamaj

Ireland would never ask iceland for advice as we as a country (take it up the backside) and guaranteed the assets and liabilities of EU banking stability of europes top banks.

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jamaamaj wrote: »

Ireland would never ask iceland for advice as we as a country (take it up the backside) and guaranteed the assets and liabilities of EU banking stability  of europes top banks.

Yes hopefully EU submission works out in the longterm. And who says the 1916 spirit is dead?

Ireland is now in a position where it can only look to the Eurocrats to sort out the mess. Unlike Iceland it doesn't have any room to manoeuvre it's given up all it's red lines and in any case it certainly wouldn't do anything like those dangerous Icelandic Viking Rebels did and hold Democratic Referendums on such issues. That would be way too rogue state ;-)

 In an ideal world Ireland would stay in the EU but re-instate the punt and peg it to the pound. The complex mess of sorting out budgets in a confederation of nation states under one currency, I believe, is always going to be doomed. 

Cutting Government Spending, attacking debt and Lowering taxes on successful businesses that produce wealth creates a stronger nation.

I envisage another artificial bubble being created and another banking collapse. The dangerous part now being - unlike Iceland - the banks know that if the ponzi bet sinks the public will pick up the debt. 

It will be interesting to see if the government seeks to do anything to diversify the economy or further encourage business growth. Ireland needs in my humble opinion to look more closely at the California Hydrogen Fuel Cell Development (it's already being rolled out by Shell) and would solve a great number of problems for a country with increasing issues on fossil fuel supply whilst at the same time having a fair share of gas supplies and gas infrastructure. Ireland would also benefit in the short term by adopting the South African Sasol Gas to Liquid production system. 
Another area to keep an eye on is the research of the Germans in creating synthetic natural gas see article: 

http://www.brighthub.com/environment/renewable-energy/articles/78303.aspx

The great breakthroughs in Irish Nanotechnology now needs to be taken from pure science to a creation from entrepreneurs into consumer goods which can be put into the export markets. The fields for this are endless. 

andrew

1) Ireland is in the Euro, Iceland isn't. This meant that the Icelandic central bank could always print enough Kroner to ensure that it's banks didn't run out of money, even in the event that they become insolvent. Ireland wouldn't have been able to do this.

2) The creditors the Icelandic banks were mostly foreigners, and so the Icelandic government could just let those investors take the loss, without it affecting the Icelandic economy. This wasn't the case in Ireland; a lot of Irish people would have been creditors of the Irish banks, and any default would've harmed the Irish economy as those investors lost their money.

3) The Irish financial system was just small enough to be rescuable. The icelandic banking system was just way too big for it to be even remotely savable.

Sand

Andrew, you're listing difficulties. Ireland has managed to jump and clear every legal, moral and intellectual hurdle in pursuit of the wrong strategy so difficulties are hardly a barrier. Its hardly beyond reason that they could have been as effective in pursuit of a proper strategy.

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andrew wrote: »

1)

3) The Irish financial system was just small enough to be rescuable. The icelandic banking system was just way too big for it to be even remotely savable.

But has the system been rescued?
Ireland has a household debt of 190%

The exposure from the oversupply of property by developers is a problem as they make a large (25%) part of the loan portfolio of Irish financial institutions. Not to mention the land speculation.

Net government debt as % of GDP is at 102.324

Has there been any open government enquiry into banking failure? What lessons have been learned? When if ever will the bail out loans be paid €85?

Goose81

Jumpboard wrote: »

Iceland should be the example looked upon by Ireland as to what a strong, independent, and wiser country does in a banking crisis. 

You do not need to burden the people with the debt of what is after all a private company. Propping up (bailing out) such large scale failures is a waste of resources and would be much better spent on tackling debt.

So what happens if you let the banks fail? Take a look 

Iceland has their own currency and can print money (quantitative easing), Ireland cannot. They cant be compared.

andrew

Sand wrote: »

Andrew, you're listing difficulties. Ireland has managed to jump and clear every legal, moral and intellectual hurdle in pursuit of the wrong strategy so difficulties are hardly a barrier. Its hardly beyond reason that they could have been as effective in pursuit of a proper strategy.

I'd argue that these are fundamental difficulties that prevented Ireland from doing anything close to what Iceland did. You can't just suppose that we could've overcome these 'difficulties' had we tried; if that was the case then what was the incentive not to try?

Jumpboard wrote: »

But has the system been rescued?
Ireland has a household debt of 190%

I guess it remains to be seen whether Ireland's system was indeed small enough to rescue. But it's unambiguous that Iceland's was too big.

clairefontaine

andrew wrote: »

I'd argue that these are fundamental difficulties that prevented Ireland from doing anything close to what Iceland did. You can't just suppose that we could've overcome these 'difficulties' had we tried; if that was the case then what was the incentive not to try?



I guess it remains to be seen whether Ireland's system was indeed small enough to rescue. But it's unambiguous that Iceland's was too big.

Iceland could deflate its currency value to keep export prices appealing.

Ireland is still an expensive country for tourists and for importers, two spots in which Ireland can make money if they could devalue their currency.

vinylbomb

clairefontaine wrote: »

....if they could devalue their currency.

But......they can't.
Plain and simple.

vinylbomb

So obviously no one bothered to read any of the links I posted, so I'll just take a few bits from a blog by an Icelanic economist, and PhD in Economic Instability.
http://icelandicecon.blogspot.ie/2013/01/the-economic-truth-on-iceland.html


Re Letting the banks fail
The Icelandic economic collapse in October 2008 was inevitable. No country has ever managed to build up its banking sector up to 10 times the worth of the gross domestic product and lived to tell the tail unharmed. When Kaupthing, the biggest Icelandic bank, went bankrupt it was the fourth biggest corporate bankruptcy in the world’s history! Glitnir’s bankruptcy was number 6 on the list, dwarfing Enron’s which occupied the no. 9 place. Landsbanki’s failure was just cut short of the top 10, ending in no. 11.

It is very important to realise one thing: the governments, both the “conservative” one prior, during and after the October crash, and the “left wing” one, which took over after the 2009 general elections, did everything they could – absolutely everything – to try and keep the banks afloat.

...the first lore on Iceland – that it intentionally let the banks to bankrupt – is not according to reality. The reality is that the government tried to save them but could not.

Re Debt relief
What the households got from the government was “The 110% Measure” (if your mortgage was higher than 110% of the property’s market value, you would get the principal marked down to the 110% mark) and “The Abstract Debt Relief” which you were only applicable to enter if you were in “serious” debt difficulties.
The total household debt cancelled due to those government-initiated measures: 49.8 billion ISK. To make any sense out of that figure: the debt of Icelandic households just before the economic collapse in October 2008 amounted to more than 1,450 billion ISK...........

..........So in total, the Icelandic households have been given a debt jubilee of 196.3 billion ISK. That’s around 13% of the pre-crisis stock of debt they had, mostly coming from the fight against the illegal foreign-currency loans.

However, despite this cancellation of 13% of the total debt, the stock of households’ debt has grown again. And why is that? It’s not predominately because households have gone back on the spending spree they admittedly were on before the crash. It is because of the indexation of the principal of mortgages in Iceland: if inflation in Iceland is 5% the amount you owe the bank increases by 5% before you pay it back!

And since the inflation in Iceland since October 2008 is 25%, one can understand why the debt of households in Iceland is not falling in accordance to what one might think

vinylbomb

And PLEASE dont ever trust Fox as a credible news source.

maryishere

We should look to all our neighbours, not just Iceland and the UK. Germany and France pay their public sectors less than the private sector averages with no ostensible ill effects on efficiency and delivery of government services.Job security in both countries is considered an attractive feature of public sector employment,although high costs of redundancies make it very hard to sack private sector workers.In contrast,even after austerity cuts Ireland pays the public sector (civil service,teachers,gardai,HSE and hospitals) about 50% more than the private sector average but delivers far fewer free services,notably in health care.If this pay is unjustifiably high,obviously that takes from money that should be available for services.

In Finance's budget forecast,2013 pay was estimated at €19 billion,which is 15% of estimated gross national income of €131 billion. If this pay was cut to roughly the same level as the private sector's,the figure would be €12.7 billion,a cut of €6.3 billion in arguably unnecessary pay. The pay bill is 15% of national income and the arguably unnecessary portion is 5%. That €6.3 billion would go a long way to reducing the national deficit.

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Dear Ireland,

Let me issue and control a nation’s money and I care not who writes the laws

With Thanks

ECB


I think Vincent Browne is definitely the last Irish Rebel.

What's the interest on that ball on chain debt (bailout) that's been taken on?
Do you think it will be life or a 20 year stretch before it's all paid off?

;-)

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maryishere wrote: »

We should look to all our neighbours, not just Iceland and the UK. Germany and France pay their public sectors less than the private sector averages with no ostensible ill effects on efficiency and delivery of government services.Job security in both countries is considered an attractive feature of public sector employment,although high costs of redundancies make it very hard to sack private sector workers.In contrast,even after austerity cuts Ireland pays the public sector (civil service,teachers,gardai,HSE and hospitals) about 50% more than the private sector average but delivers far fewer free services,notably in health care.If this pay is unjustifiably high,obviously that takes from money that should be available for services.

In Finance's budget forecast,2013 pay was estimated at €19 billion,which is 15% of estimated gross national income of €131 billion. If this pay was cut to roughly the same level as the private sector's,the figure would be €12.7 billion,a cut of €6.3 billion in arguably unnecessary pay. The pay bill is 15% of national income and the arguably unnecessary portion is 5%. That €6.3 billion would go a long way to reducing the national deficit.

France is in no better shape than Britain economically, just has better food and women which makes it seem that way.

Germany has a good system, Sweden is also a good example for how a nation deals with a banking crisis. It's come on leaps and bounds from it's blip in the 90's. The lesson from Sweden being Responsible Economic Governance.

dlouth15

andrew wrote: »

3.) The Irish financial system was just small enough to be rescuable. The icelandic banking system was just way too big for it to be even remotely savable.

This seems more to be an explanation of why Iceland could not have emulated Ireland rather than why Ireland could not have emulated Iceland (which is the point I think you're trying to make).

maryishere

Jumpboard wrote: »

France is in no better shape than Britain economically

true, but the point is Germany and France pay their public sectors less than the private sector averages with no ostensible ill effects on efficiency and delivery of government services. Here our expenditure on public sector wages is off the richter scale, by comparison. That €6.3 billion we could save would go a long way to reducing the national deficit.

Jumpboard

Crucially Iceland tackled the corruption and punished the poor performance of certain banks

It is not poised to allow another bloated out of control banking sector to flourish again

Ireland has not tackled the core of the crisis in it's banking community.

Has the Government looked at the messy CDO's , the stupid financial derivative mathematical models created for how securities ought to trade, or the total lack of sound regulation and have honest risk assessments for both investors and borrowers been looked at?

vinylbomb

Jumpboard wrote: »

Crucially Iceland tackled the corruption and punished the poor performance of certain banks

It is not poised to allow another bloated out of control banking sector to flourish again

More rubbish.

Please read this.

http://studiotendra.com/2012/12/29/what-is-actually-going-on-in-iceland/

vinylbomb

Has the Government looked at the messy CDO's , the stupid financial derivative mathematical models created for how securities ought to trade, or the total lack of sound regulation and have honest risk assessments for both investors and borrowers been looked at?

I'm sure the government has "looked" at them. But CDO and credit default swaps and all those other financial instruments are internationally traded, so our impact would be limited.

Besides the fact that they have very little to do with our situation, and the also the fact that comparing our situation to Iceland is nonsensical.

We had a good old fashioned housing bust.

Iceland basically turned itself into a giant hedge fund.

Jumpboard

It wasn't just an old fashioned bubble but systematic of a failed whole financial system. Not to mention poor oversight from the IMF


" In the lead up to the crisis the IMF was blind to the developing crises. It even praised nations like Ireland during the run up to the crisis, missing the largest bubble (relative to GDP) of any nation, an epidemic of banking control fraud, and the destruction of any pretense to effective Irish banking regulation.

The crisis revealed that the ECB’s narrow mission and function left the EU helpless to deal with a severe economic crisis. The ECB could not save Europe. Only the Fed could, and did, save Europe through currency swaps, serving as a lender of last resort (often on the basis of chimerical collateral) to major European banks, and providing liquidity backstops to myriad financial markets." 
William K Black

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Infact this guys whole article is worth reading. 

"Fianna Fail, Ireland’s ruling party during the initial crises is only vaguely left-wing, but it won the prize for the worst response to a banking crisis in modern Europe. It remains so clueless that last I checked its website it still boasted:

The measures we have taken have been commended by international bodies such as the European Central Bank, the European Commission, the IMF and the OECD and the approval of the international markets.

The old, and very true, line is that there is always at least one fool in a poker game and if you cannot identify the fool within five minutes of joining the game it’s because you are the fool. Ireland has played the fool in its response to the banking and sovereign debt crises. Fianna Fail, gratuitously, turned a banking crisis into a budgetary and sovereign debt crisis and a severe recession into a economic trap that threatens to make Ireland a mini-Japan. Fianna Fail – even after it performed disastrously and was crushed in the general election – thinks it’s a good thing that the ECB and the IMF “commended” Fianna Fail’s policies. Fianna Fail would think it was a good thing if its poker rivals “commended” how well it played poker. Unfortunately, the Irish people provided Fianna Fail’s stakes in this real-world poker game with the Irish banks’ creditors, the ECB, and the IMF. Fianna Fail still thinks the ECB is Ireland’s friend. “Naïve” is inadequate as a descriptor."

http://www.michaelmoore.com/words/mike-friends-blog/bad-cop-crazed-cop

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gaius c wrote: »

Thread advocating pouring petrol on the economy and flicking a lit match onto it so distressed borrowers at least get the satisfaction that everybody is in the **** with them #432798274

No that's already happened now your trying to put out a fire by drowning the flames in gasoline.

“IRISH banks would be all but wiped out if the Government was to default or restructure the State’s borrowings because of their vast holdings of Irish bonds and sovereign debt."

Bank of Ireland and Allied Irish Bank could face loses of as much as €11.4bn if a major haircut was part of any deal, according to a new report from Goldman Sachs, which has been obtained by the Sunday Independent.”

The only thing that these figures on Irish bond holdings demonstrate (which Goldman misses entirely) is what I have been explaining. The Irish government gratuitously bailed out massively insolvent Irish banks. The direct beneficiaries of this bailout included many foreign creditors, particularly banks, and more particularly German banks. The Irish government, because it lacks a sovereign currency and because it has guaranteed these massive debts, is short of euros. The Irish government, therefore, gave the banks Irish bonds. The Irish banks already had some Irish bonds in portfolio. Irish bonds have large market losses because Ireland is insolvent and if it follows the ECB’s austerity dictates it will become more insolvent. (Eurozone bank stress tests excluded sovereign debt risks because they were designed not to be very stressful.)"

http://www.michaelmoore.com/words/mike-friends-blog/bad-cop-crazed-cop

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Goose81 wrote: »

Iceland has their own currency and can print money (quantitative easing), Ireland cannot. They cant be compared.

You're getting over printed ECB money
Or quantative easing if you like, a shoddy system indeed.