“I think what is happening in Iceland proves that our own currency is very beneficial to our needs. You don’t have to go far back to see that the currency developments have increased the competitiveness of Icelandic businesses and industries”.
- Steingrimur J. Sigfusson, Finance Minister of Iceland two years after an economic collapse all but wiped out the Icelandic financial sector after years of “hot money” flowing into the country because of exorbitant interest rates imposed to battle inflation.
He is crediting the arsonist for bringing a bucket of water to the fire.
What he is really celebrating is Iceland moving one step closer to the developing world and improving our “competitiveness” through a worthless currency. Never mind the comparative loss of wealth to citizens in the developed world.
A classic argument for not joining the EU and improving the livelyhood of Iceland’s citizens.
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SLM
1 year ago
Cheap currency. Yepyep, it brings true competitiveness.
Devaluation of a currency is like peeing in your pants in a cold winter day. Helps for two seconds and then…
Lino
1 year ago
he’s just saying one part of truth: the part that suits him of course.
“We’re not retreating, we’re advancing in another direction!”.
When the ISK will be worthless, he will say “good for our export!”.
Besides you cannot live off devaluation, it make sense only in the short term and only if you are a net exporter and you have unused capacity. Lots of IF and AND.
And devaluing has additional costs of its own beyond the benefits true or imagined.
Is he going to propose printing more money so that Iceland is going to be richer?
:):):)
Blubber
1 year ago
And he is the sanest one of them all.
How scary is that?
rifek
1 year ago
The reason Iceland needs the euro is because no one at home knows how to run a currency. Things blew open in the first place because of poor planning in the face of the aluminum boom, and it’s been stupid stunt du jour ever since.
Don Franco
1 year ago
The problem is, and i don’t know why no one says it clearly,that even if Iceland would join the EU, it would not enter the euro zone, not a chance,not for the next 10 years at least.
Vilhjalm A.
1 year ago
There was an interesting news item today that shows how dangerous the ISK has become.
Gylfi Magnusson stated that there was a lot of money sitting in bank accounts — something like 1600-1800 billion ISK — and that it would be a good idea if it could be invested in Icelandic companies instead of just sitting in the banks.
What the news really means is this:
There is a huge oversupply of ISK parked in Icelandic banks and most of it is held by foreigners who only want to exchange it and take it out of the country at the earliest possible moment.
The Icelandic government guarantees the accounts so the accounts represent 1600 of debt owed by the Icelandic government.
If currency controls are lifted, the foreigners will try to cash out, and the Icelandic government / Central Bank can only pay out with hard foreign currency money that they have borrowed from other countries. Obviously, the government has no way of ever getting 1600 billion, to allow the foreigners to take their money out of the country.
Since the government cannot back up the 1600 billion ISK, the banks themselves cannot lend out the money to companies within Iceland, since the banks would then be technically insolvent. So the money just sits there gathering interest.
In short, the banks and Icelandic government are sitting on a monetary time-bomb.
What Gylfi M. was really saying is, “Please help. Somebody. We are in deep shit.”
And obviously too, the foreigners are not going to take the money out the accounts and invest the money in Icelandic companies because 1) there are no good investments in Iceland today, and 2) there is a good chance that the money will be stolen or disappear somehow.
Lino
1 year ago
“If currency controls are lifted, the foreigners will try to cash out, and the Icelandic government / Central Bank can only pay out with hard foreign currency money that they have borrowed from other countries. Obviously, the government has no way of ever getting 1600 billion, to allow the foreigners to take their money out of the country”
yes there is a way, a honest way, a hard way, the “right” way: devalue DRAMATICALLY and realign the ISK to a parity that can be sustained and that mirrors the “real” value of ISK.
If Iceland continues to keep the farcical pretension of official exchange rate, nobody will ever want ISK, nobody will ever offer “hard currency”: is the ISK currency market any liquid? Does it even exist a ISK currency market beyond fanciful escape from reality?
As proof, how high are the “hard currency” reserves of Iceland? How fast are they depleting: THAT is the time bomb.
What will happen when they run out and foreing suppliers stop selling to Iceland?
Then is when the real crisis will explode in Iceland, what you’ve seen until now is nothing, even Icesave will be irrelevant.
Vilhjalm A.
1 year ago
No, intentional devaluation is a bad idea. If the ISK were to go down to a realistic level, 500-700, then the price of consumer goods — nearly all of which are imported — would double. Inflation would skyrocket, and because home mortgages and other loans are indexed (but wages are not), mortgage payments and rents would skyrocket. So there is no other choice but to keep currency controls and maintain the ISK at its current artificial rate.
There is no good solution to the currency problem, except to join the EU and get the Euro. In order to do this of course Iceland must agree to pay for Icesave and make various concessions to satisfy the EU.
I see that on Silfur Egils this weekend there was (yet another) foreign expert, who said that taking more loans would be a “kiss of death” and Iceland should refuse the IMF and other loans and not pay out the “glacier bonds” that are coming due soon, or have already been paid out (in ISK). This view got a lot of enthusiasm from the Eyjan commenting crowd, and presumably also among the Icelandic public.
You can see that the dominant mood in Iceland these days is patriotism and rejectionism — no to Icesave and the British and Dutch, no to the EU, no to the IMF, no to any foreigners — without much consideration of the negative side-effects.
It is true that much of the loans that Iceland would get in the next few years would go to propping up the ISK, which also means paying out foreign currency to glacial bond holders and other foreign creditors. But not getting any loans means that the Central Bank cannot even support the ISK at a minimum level, or come up with foreign currency to buy basic levels of imports. Also, not taking loans leads to sovereign default, which would make EU entry impossible.
I would not be surprised, however, if Iceland collectively decides to go further down the isolationist road. There will be no Icesave agreement, no EU, no Euro, no loans except from Norway, the ISK will continue to bleed without hard currency to support it but will be functional, the demagogue / isolationist parties will take over (or effectively rule through obstructionist tactics) and keep in place their strategic aims — retain the fish-quota for the few rich owners, preserve the crony political/business establishment, keep power in the hands of previous owners through bank loan-write-offs, no criminal prosections, blame foreigners for all problems, and so on.
Actually, Iceland could survive for quite a long time, at a minimal level, if the country refuses to pay any foreign loans and lives off the energy and fish money, provided it cuts imports by 20-25% and keeps the currency controls in place and continues to postpone debt collections.
As I said before, the best and perhaps only hope for Iceland in the long run is to give up independence and hand over the entire country back to Denmark. Such an idea is unthinkable right now given the hyper-nationalism of most Icelanders, but I think in 10 years from now lots of people will be talking about ripping up the 1918 agreement. Maybe sooner.
Lino
1 year ago
Vilhjalm A.
this is the FIRST intelligent and well developed reasoning made by an icelander(am I guessing right that you are from Iceland?) without all the “icelandic fuffing”.
And while I do not share completely you opinion (and agree with part of it) I certainly do RESPECT it and appreciate positively the articulation.
If only I had not lost interest in the Iceland mess I’m sure we could have an interesting and constructive exchange.
Lino
1 year ago
“I’m sure we could have had an interesting”… sorry too tired going to bed