IRELAND AND GREECE cannot follow the same path to recovery as Iceland, which defaulted on its obligations in order to get back to economic stability.
That is the warning of Iceland’s minister for finance, Steingrimur Sigfusson, who says indebted Eurozone countries have greater responsibilities than his country did – adding that Eurozone countries have already taken on too much banking responsibility to stop now.
“People should be careful when it comes to drawing comparisons between Iceland on the one hand, and Greece, Portugal, Spain and Ireland on the other,” Sigfusson told Bloomberg during an interview in the country’s capital of Reykjavik.
“Iceland didn’t have the ability to save the banks. Trying to rewrite the events that led to that eventuality as some sort of an export product is irresponsible.”
Even if Ireland hadn’t already committed itself to underwriting the liabilities of its banks – a decision which ultimately led to Ireland needing its funding package from the EU and IMF – Sigfusson said Icelandic advice would not have been particularly constructive anyway.
“Iceland should be humble and avoid advising other countries, especially when it comes to banking,” Sigfusson said. “What happened was an emergency situation which couldn’t be avoided.”
Iceland did not default on its sovereign bonds, but did write off the liabilities of its banks after two public referenda gave a thumbs-down to a repayment package for the banks’ mostly UK and Dutch creditors.
Earlier this month, Iceland successfully returned to the world’s bond markets – a move which could have potentially underlined the benefits of writing off banking debt and starting afresh.
Bloomberg noted that while Fitch still rates Icelandic government bonds as junk, Iceland managed to sell off a batch of 5-year bonds at an average interest rate of about 6.3 per cent.
By comparison, the market rate for Ireland to issue a similar bond right now would be just over 12.5 per cent.