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Wednesday, December 08, 2010

Iceland Leads The Way

Iceland has turned the corner of its recession, its economy grew by 1.2% in the three months to the end of September.

How has this been achieved?

It defaulted on its debts, allowed banks to fail and let its currency slide.

Meanwhile, Ireland has passed an austerity budget that will increase its debts and ensure that its economy will stagnate for years to come.

Why cannot Ireland emulate Iceland?

Simple, it is shackled to the Euro. As long as it chooses to put politics above economics its economy will remain moribund.

The Euro itself, despite achieving the political "success" of bailing out Ireland, is under renewed pressure.

For why?

The markets do not accept, quite rightly, that applying sticking plasters to individual failing states is a policy that will work. A Euro wide policy is required to resolve the crisis, eg the issuance of Eurobonds. However, the members of the Eurozone have neither the political will or economic strength to enact such a policy.

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