International Business Editor of the Telegraph in London, Ambrose Evans-Pritchard wrote an interesting opinion piece on Iceland earlier this month in which he lauds the current state of the Icelandic krona as the saviour of the country.
He argues that the painful drop in the value of the krona has stimulated exports and stimulated the ‘import’ of tourist-money, thereby initiating the start of an economic recovery.
Ambrose-Pritchard’s argument is that Iceland’s tiny currency is not the handicap euro-proponents claim; but rather an important buffer that will see Iceland recover quicker than euro members Ireland and Latvia, among others.
“You take your punishment early with devaluation, as Britain did on leaving Gold in 1931, or ending the D-mark torture in 1992, or now,” the Telegraph article says. “You look a sorry sight at first, but sweet vindication comes later.
“It is those caught in a deflation trap with fixed exchange rates that face slow asphyxiation, and deeper social damage. Youth unemployment is already 34pc in Spain, 28pc in Latvia, 25pc in Italy, 24pc in Greece, and rising.
“At Iceland’s central bank – mercifully, no longer listed beside al Qaeda as a terrorist body by UK authorities – Governor Svein Harald Oygard says currency therapy is working as it should. “If you lean back and look you can see that fall of the krona accentuated the shock at first, but it is also now working as a turbocharger for recovery.
“‘We’ve seen a strong hit on wealth and asset values, but the story for real economy is very different.’”
The Telegraph is a right-of-centre newspaper in the UK which is often vocally anti-euro (especially when the issue of the UK joining is concerned). The euro-bashing element of the article should therefore be taken with a sensible pinch of salt.
However, the ‘buffer effect’ of the weak krona and its tourist-pulling power is undeniable; while the currency’s negative effect on homes and businesses with foreign currency loans is equally apparent. Consumer demand is hugely down and unemployment is hugely up.
No European country is suffering such unusually high unemployment as Iceland; where the crash in the property market, construction, car sales and luxury goods is all-pervasive. But Ambrose-Pritchard rightly points out that Iceland’s unprecedented 9.1 percent unemployment is still actually below the EU average, and the weak krona might just have already begun Iceland’s recovery.
Is the first to fall going to be the first to recover? With Icesave, EU membership, bank refinancing, IMF loans, winter’s lower tourism revenues and a raft of other uncertainties, it is simply too early to tell. But people seem to be smiling again and sometimes you can sense the faint smell of optimism once more permeating the fresh Icelandic breeze – if you just close your eyes and concentrate…
The original article can be found here