[LINK] "Is the Icelandic response to financial crisis generalizable?"

[rfmcdonald]

Marginal Revolution's Tyler Cowen makes the argument that the specific trajectory followed by Iceland after the 2008 financial crisis is not easily copyable by other countries, certainly not by a much more integrated Greece.

Neither [Krugman nor Yglesias] mentions that a major part of the Icelandic recipe was letting foreign deposit holders twist in the wind. That’s a transfer of wealth to the domestic economy and furthermore it was politically palatable; it is also a choice which won’t much help any larger country where most of the deposit holders are domestic. It is noteworthy that this kind of choice loomed large for Cyprus, another small country with a lot of foreign depositors.

Iceland is also so small that cutting off these creditors won’t much damage the broader global economy or lead to significant contagion. Today, in a much safer macroeconomic environment, we’re not even sure the same could be said for Grexit, and Greece is a pretty small country in economic terms.

On top of all that, not paying back the foreign depositors was a transfer to Iceland. It is easy enough to see why Icelanders might like that idea, but the objective foreign analyst, who ought not favor the more Nordic peoples above the others, also should consider the loss side of the ledger, namely in the UK and Netherlands.

What else?

Don’t forget that the value of the Icelandic stock exchange fell by 90% – how many other countries could endure that or would accept it? That is easier to pull off when there are only six stocks trading on your exchange and those equities are not central to your savings.

More there.