Politicians should play by market’s rules and look to Iceland

THERE is not much good news anywhere you look: the G20 was a disaster, the predicted slowdown in growth globally is bad news for Ireland, the coming budget could end up being an interim one, and the EU is losing the plot.

But, all around, the same old measures are being adopted and continue to be used despite the fact that obviously they are not working. It seems to be part of the human condition that, as circumstances deteriorate, we are increasingly unable to offer a new response.

What is needed is new thinking. The indications come not just from the fact that the same old methods are not working, to the brave efforts of a few that are thinking outside the box.

Take Iceland. They went from poor fishermen to big shoppers, jetting into Ireland to buy up whatever they could lay their hands on. A little like the Irish flying to New York for the good value their retailers offered.

Like Ireland their over-inflated banks went belly-up having close to twice the amount of debt per capita of Ireland’s. The comparisons stop there. They had more leeway than Ireland since they had their own currency and could devalue it — which they did at huge cost to their citizens. And they banned the krona leaving the country.

They got bailouts from the IMF and from their fellow Nordic neighbours and implemented a plan with one of its aims being to protect their social system, and this included removing negative equity from householders — and the sky did not fall in.

Believe it or not, the IMF is now putting forward this island of just over 300,000 people as the poster-boy of a successful bailout with the gap between the rich and the poor narrowing.

The global body responsible for ruining generations of potential in South America in the last millennium is now putting equality as one of the key aims behind successful programmes. They did the research to prove it and were delighted to email journalists globally a few days ago with a report on a conference in Reykjavik where two Nobel-winning economists compared Ireland unfavourably to Iceland on the decision to bailout the bankers.

One of them very pointedly said that the argument that a country would lose credibility through burning bondholders had been proved to be nonsense.

Another person who could be expected to be a mouthpiece of orthodoxy, Mario Draghi the new president of the European Central Bank, in his first press conference in his new job called for “moderation of both profit margins and wages”. He will have to say it many more times before the very orthodox financial media pick up on it.

And while Ireland mulls over its inability so far to convince the ECB and the European Commission that it should not be paying out to investors in the defunct Anglo Irish Bank, perhaps they should think about the Greek situation.

Banking representatives have agreed to take a 50% haircut on their bonds and negotiations will continue with whatever new Greek government comes into power.

But there is a new issue: many of the banks don’t want this haircut, whether it be 50%, 60%, or 90%, to be voluntary. They would prefer it to be considered a default and so would allow them to collect on the insurance they took out against such cuts. Maybe it’s time those who represent the taxpayers start playing by the market’s rules and tell those who have insisted on Ireland honouring dubious debts to look to Iceland.