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
Intelligent article by The Telegraph. It’s totally iased of course, but still…
A E-P is a running joke.
Acording to him, Iceland is a major success story now and everything has worked out perfectly.
Yes this is a good article.
Do find it fun that Euroskeptic is used in front of Telegraph. When FT.com write article on Iceland and EU will you editors make sure that article is titled –
“Europhile FT.com still praising Iceland EU membership”
Stepping back a bit from looking at EUR and currencies in general, expect shock devaluation of USD coming up.
If a butterfly in the Amazon flaps its wings in praise of Iceland, we would hear about it, in an Icenews headline :)
Well, the krona fall was like a basket of cold water for a drunk person – to get him back to reality. Indeed it was pure madness – all these Land Rovers, Porshe, plazma screens and other “luxury” stuff. Icelanders are not that reach really as they were told.
The crisis also showed them the real face of famous “oldest democracy”.
But it’s not the currency that might make recovery faster. It’s the loss of illusions that makes people of Iceland to get back to reality and fix the things faster ;-)
And the Most Quippy Comment award goes to Mark Barber:
Iceland will get there in the end.They are a race of resilient optimists,afterall. I mean,who else but an optimist would live on a volcanic island made up of constantly mobile tectonic plates,few natural resources and a history of boom/bust economies?? The real change required after the kreppa is that to political integrity,honesty,ethics and morality……with a refreshing departure from the old oligarchic system of fat,balding men with small members in black Hummers,running the nation for themselves and their pals. Having the assorted Outvasion Vikings (and their facilitators) do some time in jail for fraud and treason would also go a long way towards assuaging national anger.
Bromley: Perhaps things happend in Zimbabwe:
http://www.bloomberg.com/apps/news?pid=20601084&sid=a01hMdAPC0g8
Oystein. I saw something similar in a BBC report. Now that they’re officially allowed back in, the returned to a supermarket that they secretly filmed a while back. Instead of totally empty shelves, they were fully stocked. Not just with domestic unpackaged produce either (not that processed/preserved food is a mark of quality, but it is a mark of a working distribution network).
Still, the report did say that the country had effectively adopted the USD, so perhaps not a vindication of the “quantitative easing” :) .