Iceland’s economy is recovering nicely (hat tip: Paul Krugman). What are some of the things they did? Iceland let its banks fail, didn’t guarantee these banks’ debts (unlike the Irish), did guarantee the deposits of its domestic citizens, debt relief and debt forgiveness. The medicine you need to cure a financial crisis isn’t rocket science and recovery is long, over many years.
The only part of the above-linked article with which I disagree is the following paragraph:
Analysts attribute the surprising turn of events to a combination of fortuitous decisions and good luck, and caution that the lessons of Iceland’s turnaround are not readily applicable to the larger and more complex economies of Europe.
No New York Times! Bad New York Times!
What’s holding Europe back from repeating the above? Its because its not one state. Gotta fix that before anything else is done. Because Iceland is one state, they had the ability to pull the band-aid off in one smooth motion. Europe is stuck pulling out hairs one at a time.
When will you know Europe is out of this mess? Once they’ve created a federation where the federal European government (backed by its own taxing authority) is able to implement what Iceland did. Either that or completely separate. Why is it taking them so long to figure this out? See this post (which I promise is not a series of links like this one, but contains actual ideas).
I think its safe to say that for two years, Europe has applied no medicine to cure their crisis, let alone beginning a recovery.