In 2008, Iceland, a $14 billion economy, decided to default on $85 billion of nonsense the banks dreamed up. What happened?
Now, the island is finding crisis-management decisions made half a decade ago have put it on a trajectory that’s turned 2 percent unemployment into a realistic goal.
While the euro area grapples with record joblessness, led by more than 25 percent in Greece and Spain, only about 4 percent of Iceland’s labor force is without work. Prime MinisterSigmundur D. Gunnlaugsson says even that’s too high.
“Politicians always have something to worry about,” the 38-year-old said in an interview last week. “We’d like to see unemployment going from where it’s now — around 4 percent — to under 2 percent, which may sound strange to most other western countries, but Icelanders aren’t accustomed to unemployment.”
The lesson in all of this is simply that the fear the banking industry pumps into the American system about how the world would surely end if they failed may be greatly exaggerated. Yes, for the US, the result of this form of creative destruction might not be as pretty as Iceland but it's also unlikely to be something like The Day After Tomorrow.