ICELAND’S CENTRAL BANK has cut its headline interest rate, giving a signal that the island’s bankrupted economy was edging back towards health. The country’s base rate fell one percentage point to 4.5%, after figures showed the economy growing at a faster pace than expected after seven successive quarters of contraction.
But while a resurgent Icelandic economy means rising income levels for the country’s 320,000 inhabitants, it causes problems for Irish politicians. Far from the worst being over for Ireland, as its politicians and bankers have claimed over the last year, the situation is getting worse. The huge bailout brokered by the EU and the IMF last week and agreed by the Dáil this week is seen by many analysts as perpetuating Ireland’s recession for many years to come.
Analysts said the likelihood was that Iceland’s return to growth would be seen by its population as vindication for taking a tough stance with foreign governments and the investment community. In sharp contrast to the message sent to Irish citizens that non-payment would make them pariahs among investors, the analysts argued Iceland’s punishment would be short-lived and its government would be able to borrow again within a few years.
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