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Iceland, Ireland and Argentina

Krugman today looks at the developments of Iceland versus Ireland post-crisis and notes that Iceland, despite its famous financial crash’n’burn moment not that long ago, is doing better than Ireland. 

What’s going on here? In a nutshell, Ireland has been orthodox and responsible — guaranteeing all debts, engaging in savage austerity to try to pay for the cost of those guarantees, and, of course, staying on the euro. Iceland has been heterodox: capital controls, large devaluation, and a lot of debt restructuring — notice that wonderful line from the IMF, above, about how “private sector bankruptcies have led to a marked decline in external debt”. Bankrupting yourself to recovery! Seriously.

And guess what: heterodoxy is working a whole lot better than orthodoxy.

Well yeah, cos as far as we down here are concerned all this is just a repeat performance of Argentina 1999 to 2005. In the first part of that period Argentina did what Ireland is doing, listened attentively to The IMF, did what it was told, rationalized, cut and got all austere. The result of listening to the self-important dumbasses in suits was the financial implosion of late ’01 and the wholesale rape of the country’s savings by foreign financial institutions. Then 2002 onwards, the country did what Iceland did, gave the IMF the royal bird and did everything it should have done in the first place. The result can be seen in that chart of the day today, a couple of posts down. 

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