Advocates of austerity argue that reducing government deficit avoids default risk, boosts confidence and encourages lower interest rates. What is the underlying motive of a government in crisis response? But from the perspective of a country whose objective is to stabilise the economy while also supporting its citizens, these policies make a lot more sense.It would be foolhardy, of course, to generalise the specific actions taken by Iceland as a lesson for other economies. Or to protect its citizens?The failing of modern economic policy has been the wholesale assumption that in targeting growth, the welfare of a nation’s citizens will surely follow. Kaupthing Bank, Landsbanki, and Glitnir Bank had defaulted on $62 billion of foreign debt, according to Thomson Reuters data. With a population of just over 300,000, Iceland benefited enormously from the nimbleness of its economy, transitioning almost instantly from the ruins of the financial sector to the boom in tourism propagated by its cheap currency. Ireland emerged from its Troika bail-out programme on 15 December 2013–the first programme country to do so.This historic day marked the restoration of Ireland’s economic sovereignty, and through progressive policymaking, we have continued to go from strength to strength. After three years of sacrifice, hard work and difficult reform, Ireland has fought its way out of the depths of the financial crisis to become one of the fastest-growing economies in Europe and one of the best countries in the world in which to do business.Today, the Irish economy is creating nearly 1,000 new jobs every week, exports have reached record levels, and more than 1,200 companies have chosen Ireland as their strategic base in Europe.In Europe, Ireland was among the worst-affected countries by the crisis. To control inflation? Iceland's Financial Crisis and Its Causes . Importantly, however, social benefits were safeguarded. Each dollar spent by the government has ripple-like effects as recipients of the initial stimulus spend their money, recycling the stimulus back into the economy.Like many debates in economics, the battle of austerity versus fiscal stimulus in times of economic crisis has descended into theology, and misses the point entirely. We are also actively participating in the OECD’s work on the Base Erosion and Profit Shifting (BEPS) project, and Ireland has taken concrete steps to close loopholes exploited by multinational entities to avoid taxes. In a climate where banks were deemed “too big to fail,” Iceland found that its three big banks were in fact “too big to save.” The banks were nationalised and split into domestic and foreign operations, with the government guaranteeing domestic deposits whilst abandoning the foreign operations side. We have come a long way in the last three years and our task is not yet complete. The currency was allowed to devalue by almost 60 per cent from the end of 2007 to 2008, restoring competitiveness and flipping the trade balance into surplus. Initially, these cuts led to a sharp decline in GDP of 7 per cent. Having experienced firsthand the profound social and financial damage wrought by the global crisis, the Irish government has focused on one clear priority–to get Ireland working again. It is only through a shared understanding of this New Global Context (the theme at Davos) that now prevails economically, socially and politically that world leaders can design effective policy responses to support sustainable and equitable economic growth.Intelligent policymaking will always be informed by the best available advice, and it is with good reason that Ireland holds the independent advice of the OECD in the very highest regard. In this blog, I examine the key elements that allowed Ireland to regain its footing. Unlike everybody else, Iceland got closure.Garyn is a Master of Economics student at the Australian National University (ANU). In October 2008, Iceland nationalized its three largest banks. However, in the last 2 years prices for land, houses and flats have been sinking constantly. The distinction is crucial, and to see why, we should take a look at Iceland’s recovery from the Global Financial Crisis.Relative to the size of its economy, Iceland’s financial crisis was the largest in the world. This necessitated difficult decisions as we strove to stabilise the economy and repair the banking sector, while at the same time fixing the public finances. How human-centred policy helped Iceland overcome the Great Financial Crisis2018 will mark 10 years since the collapse of Lehman Brothers, when the worst financial crisis since the Great Depression became global.In responding to the downturn, many governments, including the US and Australia, turned to Keynesian policies – programs of deficit spending to boost ailing demand. Iceland’s recovery is important because of its priorities – the decisions made about who to protect, and who to shoulder the cost of recovery.There is one more key difference between the Icelandic recovery and the experience of the rest of the world. Development and humanitarian assistance are priority policy areas for Ireland, and the regular OECD peer reviews of the Irish Aid programme are an integral part of assessing its effectiveness and identifying areas for improvement. In any case, many other developed economies which have variously implemented either stimulus, austerity, or stimulus and then austerity, have likewise emerged from the shadow of the Great Financial Crisis.What makes the story behind Iceland’s recovery important is not simply that it recovered. The efficacy of stimulus spending comes from the multiplier effect. Ireland Executive Board Calendar. So how did Iceland return to growth just two years later?The rest of Iceland’s policy response was a defiance of economic orthodoxy. While we are now among the fastest-growing economies in Europe, we must finish carrying out further reform to ensure that we create the right conditions for even greater economic activity and job creation, while delivering high-quality public services and a fair society. A program of private debt forgiveness was implemented, easing the debt burdens for a quarter of the population.


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