Greece is teetering on the brink of a financial crisis at the same time as Iceland is finally lifting controls imposed during one.
The Icelandic finance minister has announced the end of capital controls – or limitations on what people there can do with their money – imposed after the 2008 crash.
Iceland’s recovery has been celebrated.
While other countries are still suffering from flat inflation and badly behaved bankers, Iceland has jailed those in charge when its banks were borrowing 20 times their worth. Unemployment is below 5 per cent, down from almost 10 per cent at the height of the crisis in 2010.
Should Greece follow Iceland's example?
Sometimes massive currency devaluation leads to a speedier recovery
Iceland had its own currency, the krona, It could artificially devalue it relative to other currencies, reducing the real value of high wages by 50 per cent, cutting spending, making exports more competitive and imports more expensive.
The devalued currency also put Iceland on the map as a tourist destination. Greece can’t pull the same trick because it has the euro.
The Icelandic prime minister Sigmundur David Gunnlaugsson told the BBC: “It can be difficult to leave the euro when you’re in. Since the Greeks are already within the Eurozone, this is a problem that must be sold not just by the Greeks but by the Eurozone as a whole.”
Making capital controls work
Many commentators watching the situation in Greece have raised fears about the possibility of the Greek government imposing capital controls if the country was unable to default on its debts.
Iceland embraced capital controls, freezing foreign money in its banks, which stopped inflation. Now the government is relaxing these controls.
It might be too late for capital controls to have the same impact in Greece. Around €30bn of capital has left Greek bank accounts since October.
Debt? What debt?
Neither Greece nor Iceland wanted to pay their creditors.
Greece has repeatedly turned down bail-out deals that would require it to cut pensions and welfare.
When Iceland’s banks collapsed, the Icelandic government let them go into administration rather than bail them out. The whole government was behind the plan. "The unifying issue was that the taxpayer should not take on the debt," Gunnlaugsson said.
Instead, Iceland restructured the banks and took a £1.37 billion loan from the IMF. It shunned austering, even increasing social welfare in some cases, and turned its back on debts it owed to companies abroad.
One big difference is that Iceland’s debts were owned by private institutions like banks, while Greece mostly owns money as a state.
The one thing Greece doesn’t need any lessons from Iceland about is national pride.
Polls have shown that over three-quarters of Greeks support the Syriza party’s hardline stance to have Greece’s debts cancelled. The Icelandic prime minister Gunnlaugsson said that national pride of this sort can be an important tool.
“A certain sense of national pride is important in dealing with all sorts of national problems, even economic problems, because pride helps people to stick together when faced with difficult issues, even when it looks like a case of David vs. Goliath,” Gunnlaugsson said.