Watch Iceland’s president explain just how they got their country down to 2% unemployment and kick-started their economy.
The first step? Let private banks fail. Hmmm…
President Olafur Grimsson: There are, of course many reasons why Iceland has recovered earlier and more effectively than any other European economy that suffered from the financial crisis. But there are two fundamental dimensions to how we did it differently from others. The first is, we did not follow the prevailing orthodoxies of the Western financial world, the so-called Washington consensus of the last thirty years. We for example, let the private banks fail and I have never understood why the banks are somehow treated like the holy churches of the modern economy, who are not allowed to fail. Secondly, we did not introduce the similar kind of austerity measures that had been almost mandatory in many other countries. We tried to protect the health service, the educational service, the welfare of those with the least income in our country. We introduced capital controls and we let the currency devalue. And we did many other things, that we're not deemed to be orthodox within the prevailing recommendations of the last thirty years.
But the second dimension is that we were fortunate somehow to realize early on that this was not just a financial crisis. This was also for the first time in the modern memory, a profound political, democratic, social and even a judicial crisis. And unless you introduce reforms on all these levels as well as the right economic policies, you would never be able to galvanize the nation to move forward. And many people tend to forget that an economy is not just a set of associations between financial institutions and companies and so on. An economy is fundamentally a community of people, and unless the people feel confident and have a vision and the will to move forward, it doesn't matter what kind of policy you try to implement. You will never be able to succeed.
And these two dimensions, are in my opinion one of the reasons why, despite the still difficulties, of course, why Iceland is now in a better position than anybody, including us could have expected four or five years ago.