On: Let banks fail: Iceland’s plan looks to be working

[mathattack]

The damage was pretty big anyway, no? The currency lost half it's value and never recovered, right?

[tim333 → mathattack]

An interesting point is there is a difference between damage to paper valuations and damage to the real economy. In Iceland's case there may have been a big paper impact where before the crash your currency was worth so many dollars and after many fewer but in the real world people had the same houses and cars and kept their jobs and so on. In Ireland on the other hand people lost their jobs and houses, topped themselves, emigrated and so on. At the end of the day real wealth and human well being are what counts and the financial system is only a tool to achieve that.

[stonemetal → tim333]

If the value of their paychecks was cut in half, then didn't that have a impact on their "real wealth and human well being"?

[arjunnarayan → stonemetal]

Because the value of most of the things you needed to buy (mostly other people's labors in food service, etc.) was cut in half too. Of course this doesn't count imports (which became twice as expensive in real terms) but that's a hit that can actually be survived.

[tim333 → stonemetal]

The value of their paychecks probably remained about constant for local goods such as food and rent. They probably fell a lot in terms of things like flying to London to go shopping and that is a real change but probably one they can live.

[mathattack → stonemetal]

It's really the value of their paychecks relative to imports. (In a small country, you do have to export a lot relative to GDP, but you can wind up exporting cheaper too)

[relate → mathattack]

Most definately, although the currency has been very unstable from the beginning.

In fact, the ISK/USD has gone from 7.25kr/USD (1981) up to 97.5kr/USD (2001), down to 62.7kr/USD (2005) and is now at 115kr/USD. So yes, half it's value relative to 2005.

However, this probably paint an overly pretty picture, because the currency is essentially fixed by the central bank and protected with restrictive regulations. For example, if I want to buy USD, I have to show the bank an airline ticket and there's a limit to how much I can buy (< 6.000$ )

[toyg → mathattack]

Depending on circumstances, currency devaluation might not be such a terrible thing, as long as the movement is swift and rare.

[ExpiredLink → mathattack]

Iceland wants to join the EU. They will have to pay their debt first. You cannot fool 'foreign' countries and join them at the same time.

[relate → ExpiredLink]

First, the majority of Iceland does NOT want to join the EU - and the Mackerel dispute is not helping, since Iceland's main fear of the EU is due to the fishing policies.

To pick up the Europe, Iceland would have to lower their national debt, among other things. However, that's not an restriction to join the EU.

If you are referring to the Icesave dispute, then Iceland has been cleared by the EFTA court: http://en.wikipedia.org/wiki/Icesave_dispute#EFTA_Court_clea...