Iceland’s PM tells Tim Wallace the country only recovered because it is not in the Eurozone
ICELAND is back from the brink, and Prime Minister Sigmundur David Gunnlaugsson wants the world to know it.
The tiny mid-Atlantic nation’s outsized banking system fell apart in the financial crisis in such dramatic style that the country became synonymous with banking excess and economic collapse.
Other countries experienced similar failures, but Iceland’s size and position outside the Eurozone meant it had less external help and allowed its banks to fail instead of bailing them out.
The state’s inability to bail out investors led to sticky moments, with Gordon Brown’s government using anti-terrorism legislation to take action against Iceland-owned banks in the UK.
It looked a disaster at the time, and was indeed a very painful recession – but in fact meant the government was less encumbered with debts than those like Ireland, Greece or even the UK – and it has been able to bounce back rapidly.
“It is safe to say if we had the euro at the time of the economic crisis we would have been put in the same position as Ireland or other countries,” said Gunnlaugsson, who recently suspended Iceland’s negotiations to join the European Union.
“Emergency loans would have been pushed on us to keep the banks going. This might well have bankrupted Iceland, because the sector was proportionately even bigger than there.”
A fall in the country’s exchange rate – something which could not have happened as a small Eurozone state – saw imports become more expensive, driving inflation up as high as 20 per cent.
But it also made Icelandic firms far more competitive internationally, pushing up exports and leading to a doubling in tourist numbers.
As a result growth returned to Iceland in 2011 and unemployment is down below five per cent.
But that is not to say the country is completely in the clear – it still has capital controls in place to stop pre-crisis investors from taking their money out of the country.
As well as distressing those investors, the controls also put off new money from coming into the country, for fear of being trapped.
“While new investment is not subject to capital controls, it is however natural for people to ask ‘is it safe to invest in Iceland now, is there a danger we will get new capital controls on new investment?’” Gunnlaugsson acknowledges.
But he hits back that safety is a relative concept, and that other options for investors – particularly in Europe – look worse.
“My answer would be that because Iceland has gone through the crisis it is a safer place than those that haven’t finished with the crisis and haven’t learned from it.”
PROFILE: SIGMUNDUR DAVID GUNNLAUGSSON
March 12th, 1975: Sigmundur Davíd Gunnlaugsson is born in Reykjavik, Iceland.
2000-2007: Part-time journalist with Iceland’s National Radio.
2005: Gunnlaugsson graduated from the University of Iceland with a bachelor degree in business administration with part-time studies in media.
2007 - 2008: Studied at Plekhanov University in Moscow, studied political science at University of Copenhagen and studied economics and political science at Oxford University.
January 2009: Was elected the chairman of the Progressive Party.
2009-2013: Member of Althingi – the Icelandic parliament – for the Reykjavík North Constituency.
2011: Married Anna Sigurlaug Palsdottir, daughter of Paul Samuelsson, former owner of the Toyota dealer in Iceland.
2012: Sigmundur and Anna’s first daughter, Elin Sigrid, is born.
23 May 2013: Elected Prime Minster aged 38, the youngest since the Icelandic republic was founded in 1944.