Ice­land stresses that its model can­not be copied

Kathimerini English - - Business & Finance -

Ice­land is warn­ing Greece and Ire­land not to copy its re­cov­ery model even though the North At­lantic is­land coun­try man­aged a re­turn to in­ter­na­tional debt mar­kets less than three years af­ter let­ting its banks de­fault on $85 bil­lion. “Peo­ple should be care­ful when it comes to draw­ing com­par­isons be­tween Ice­land on the one hand, and Greece, Por­tu­gal, Spain and Ire­land on the other,” Fi­nance Min­is­ter Ste­in­grimur J. Sig­fusson said in an in­ter­view in Reyk­javik. “Ice­land didn’t have the abil­ity to save the banks. Try­ing to re­write the events that led to that even­tu­al­ity as some sort of an ex­port prod­uct is irre- spon­si­ble.” Ice­land’s suc­cess in re­build­ing its econ­omy has been con­trasted with the plight of euro mem­ber Ire­land by econ­o­mists in­clud­ing No­bel lau­re­ate Paul Krug­man. Ire­land, where most bank debt has been pro­tected by a state guar­an­tee since 2008, would have been bet­ter off us­ing Ice­land’s “bankrupt­ing your­self to re­cov­ery” model, Krug­man ar­gued in a Novem­ber 24 New York Times col­umn. Sig­fusson says the ad­vice could be dan­ger­ous, as Euro­pean lead­ers try to agree on how in­vestors share the cost of a sec­ond Greek res­cue. “Ice­land should be hum­ble and avoid ad­vis­ing other coun­tries, es­pe­cially when it comes to bank­ing,” Sig­fusson said. “What hap­pened was an emer­gency sit­u­a­tion which couldn’t be avoid- ed.” Though the is­land never re­neged on any sov­er­eign debt, its bank fail­ures left cred­i­tors try­ing to re­coup more than dou­ble the $40 bil­lion Rus­sia de­faulted on in 1998. Ice­land’s res­ur­rec­tion twoand-a-half years af­ter be­com­ing a pariah in in­ter­na­tional cap­i­tal mar­kets may yet em­bolden lead­ers else­where in Europe to con­tem­plate the prospect of life af­ter bur­den shar­ing. (Bloomberg) lor An­gela Merkel meet. “The French po­si­tion is: vol­un­tary as­so­ci­a­tion of the pri­vate sec­tor, no re­struc­tur­ing, no credit event and work­ing with the ECB,” Fran­cois Baroin, a gov­ern­ment spokesman, told re­porters yes­ter­day af­ter the weekly cabi­net meet­ing in Paris. The euro weak­ened and the cost of in­sur­ing Greek and Por­tuguese debt soared to records as Euro­pean of­fi­cials failed to agree on a res­cue plan for Greece dur­ing a meet­ing in Brus­sels yes­ter­day. Mario Draghi, the in­com­ing ECB pres­i­dent, sig­naled he may fa­vor a vol­un­tary rollover of Greek debt by in­vestors in the style of the 2009 Vi­enna ini­tia­tive. The ECB and Ger­many are at odds over how to bail out Greece again, with Ger­man of­fi­cials push­ing for cred­i­tors to share some of the cost. France’s de­ci­sion to throw its sup­port be­hind the Frank­furt­based ECB puts it at odds with Ger­many. While French Fi­nance Min­is­ter Christine La­garde has ruled out any ac­tion that con­sti­tutes a “credit event,” her Ger­man coun­ter­part, Wolf­gang Schaeu­ble, said on June 10 that Europe’s big­gest econ­omy “has to in­sist on the par­tic­i­pa­tion of the pri­vate sec­tor” in Greece. The two fi­nance chiefs met yes­ter­day to pre­pare for the meet­ing to­mor­row be­tween Sarkozy and Merkel in Ber­lin, Baroin said, with­out giv­ing de­tails on the out­come of their talks. (Bloomberg) “slow re­cov­ery” al­though doubts re­main over deficit re­duc­tion tar­gets and the gov­ern­ment must stick to its re­form pro­gram, the cen­tral bank said yes­ter­day. “The per­spec­tive for 2011 sees a slow re­cov­ery on the hori­zon which is not ex­empt from cer­tain notable un­cer­tain­ties,” the Bank of Spain said in its an­nual re­port. This re­cov­ery is “very de­pen­dent on the ca­pac­ity to ben­e­fit from the dy­namism in the rest of the world... to al­low ex­te­rior de­mand to sup­ply the nec­es­sary in­crease in ac­tiv­ity and em­ploy­ment.” “The re­cov­ery of do­mes­tic de­mand is con­di­tioned by the level of debt in the pri­vate sec­tor,” it said. This was sub­ject to “huge un­cer­tain­ties and pos­si­ble risk, with ten­sions on the big fi­nan­cial mar­kets.” (AFP)

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