Iceland warning

ICELAND is warning Ireland and Greece not to copy its recovery model, even though the Atlantic island managed a return to international debt markets less than three years after letting its banks default on $85 billion (€58bn).

“People should be careful when it comes to drawing comparisons between Iceland on the one hand, and Greece, Portugal, Spain and Ireland on the other,” Finance Minister Steingrimur J. Sigfusson said in an interview in Reykjavik.

“Iceland didn’t have the ability to save the banks. Trying to rewrite the events that led to that eventuality as some sort of an export product is irresponsible.”

Iceland’s success in rebuilding its economy has been contrasted with the plight of euro member Ireland by economists, including Nobel laureate Paul Krugman. Ireland, where most bank debt has been protected by a state guarantee since 2008, would have been better off using Iceland’s “bankrupting yourself to recovery” model, Krugman argued in a November 24 New York Times column.

Though the island never reneged on any sovereign debt, its bank failures left creditors trying to recoup more than double the $40 billion Russia defaulted on in 1998.