From Iceland to Sweden: they did come out of a collapse of the financial system

The IMF has elevated it to an example category to get out of a financial crisis. Iceland's economy (the country with the second highest GDP per capita in the world) sank in 2008, but has resurfaced. What did he do to get afloat? Will you serve your recipe for the rest of the continent?

As they said of the man who killed Liberty Valance, when something becomes a legend, it speaks of the legend. Which is like saying that the truth is not important. That is, also, what has ended up happening with Iceland, a country that has risen to the example altars to get out of a financial crisis.

Because the small island in the North Atlantic was the first to suffer the impact of Lehman Brothers in 2008 and, while the rest of the world doubts again, its economy is already coming out of the hole with a very high head. As it did? How much is really in your solution? And, most importantly, can the recipe be copied?

The International Monetary Fund and two of the most media Nobel Prize in Economics (Paul Krugman and Joseph Stiglitz) believe so, that the small northern country shows us the rest of the way.

However, the Icelandic route is not the only one possible. Without going too far south, Sweden demonstrated in the 1990s that there were options to face a collapse of the banking system.

Even if we don't leave Iceland yet. Regardless of its success or error to handle a situation where the debt of its banks multiplied its own Gross Domestic Product by ten, its dimensions should be remembered: with just 300, 000 inhabitants, its GDP is just over 10, 000 million euros. Before the crisis, he presented the second highest GDP per capita in the world.

La Rioja, for example, adds more than 320, 000 residents and a significantly lower GDP of just over 8, 000 million. To close the comparisons, all the wealth of Iceland is equivalent to 1% of the Spanish, so you have to be cautious when extrapolating any measure because the difference in figures is abysmal.

In any case, the hole in which their banks incurred multiplied by ten the country's capacity and, even so, they have left the hole. What did you do? Basically, they dropped the entire financial system, whose debts passed to private creditors.

Once in the hands of others, they would be in charge of selling the toxic assets, but, in no case, the losses were socialized through the injection of public money into these entities (which is the system that the rest of the continent is still trying).

“What was seen as a disaster for the nation three years ago is increasingly seen as a stroke of fortune over time. The Icelanders may have lost their financial system, but they were saved from the burden of nationalizing a private debt, ”said Economy Minister Àrni Páll Arnason, a few days ago in a conference sponsored by the IMF in Reykjavik to take stock of the situation .

"Iceland zig-zag when it was conventional to do only zag, " Nobel Paul Paul Krugman praised in the same day according to the IMF itself. The New York Times columnist also noted that, then, it not only sank to the banks.

Measures were also taken to prevent capital flight, the exchange rate was depreciated and offset by the expense route to help the lower classes (although in the first year any decision in this regard was frozen).

From the second, and not without few confrontations with the IMF (which did not want more spending), the welfare state throughout the country was guaranteed. Some of the money needed for the latter was taken from a tax increase on those who charged more. Thanks to this support, consumption remained despite the bleeding of foreign investments.

In this beautiful story there is the odd shadow, such as that of the Icesave case, the dispute over the loss of deposits from the middle classes of the United Kingdom and the Netherlands, who invested in Icelandic banks and have run out of nothing. The controversy continues in the courts.

The other example comes from Sweden

To take a second perspective on how to get out of a bank crash, you have to take a boat to Sweden and travel back in time until the 90s.

As the Businessmen's Circle just recalled, the Nordic country adopted a series of decisions that can be summarized in five.

The first was to approve a comprehensive sanitation plan, which was complemented by the creation of an independent authority that supported the banking system and enjoyed open financing.

In third place (and perhaps more important because it begins to be debated in Spain), the banks without solution were intervened with total transparency. Of course, its assets were divided into good and bad, passing the negatives to some agencies (something like other banks) that gradually sold the portfolio.

Translated into Spanish, it would be a question of creating a big bad bank that assumes real estate assets and manages them without the rush that does hurry up traditional banking. The income received would serve to balance the system later.

On the way back to Sweden, the fourth measure that was taken was the unlimited guarantee of bank liabilities, which stopped the leakage of deposits (that is, people fleeing from banks). For that, the Deposit Guarantee Fund is supposed to be.

And finally, the shareholders bore a good part of the losses.