Not a unique Icelandic crisis

We think that it is not a uniquely Icelandic crisis rather the issues are common to all modern industrial countries: finding the balance between free markets and individual freedom, sustainable growth, prosperity and social needs. As Iceland became a negative symbol it can become a positive one.

Analysis – Causes for the crisis

The root of the Icelandic crisis is a failure of checks and balances combined with the systemic flaw of modern democracies where being a politician is mainly a job not a calling, let alone a sacrifice. The ensuing over-emphasis of short-term gains with enormous imbalance in spending inevitably will fail eventually. Fact is that Iceland is today ranked 7th in debt internationally. It is not about 10 times GDP in banking assets as this is only one figure not able to capture the overriding systemic flaws. Þorvaldur Gylfason dares to say the emperor is naked by speaking of political corruption with an unflatteringcomparison of Iceland with the notorious corruption of Russia and Italy.

Time for a national action plan

There is, however, still missing a strategy where the country will be heading in the 21st century. The Icesave debate will end in an agreement sooner or later, but the high debt/GDP will not go away. EU accession will be on the political agenda while changing circumstances in the European Union question the future of EU itself. The special prosecutor will do his much needed job. But the issue of sustainability remains.

NyIsSköpun therefore thinks that a national action plan is necessary. It should clearly address short term needs, mid-term stabilization and long term issues. The drafting of this national action plan is not to blame others rather a rallying cry to bring up facts, arguments and let the better ones prevail without debating issues to death. Once an issue has been identified and clarified it is time to act. Let the Viking genes shine.

Like every blueprint, our concepts will not address everything. They will not turn every Icelander into a millionaire but together are a clear vision how Iceland's future could be like as an independent still well connected nation.

Short term – restructure debts

Our first call is therefore to proceed as soon as possible to a debt restructuring that allows a return to a normal level. This debt cut has to be accompanied by supportive measures.

Getting debt levels to a sustainable level is only halfway. Iceland is facing a true Schumpeterian moment where numerous well-educated people with engineering or software background lost their unproductive job in finance and have to find ways to make a living. The particularity of Iceland as a small county with a tiny home market emphasizes the need for exporting companies. We therefore developed the project of an Icelandic international business plan competition addressing this issues and Icelandic skills in particular.

A diversified and shock absorbing economy (thus society) cannot only be export based especially when everybody else is trying to export out of the crisis. Thus we also focus on how the localized economy can be stabilized.

Mid-term – a fundament for sustainable growth

A second issue is promoting growth opportunities in Iceland. Financial services as an option tried and proven to be unviable and a damaged capital stock raise unsavory questions yet to be answered. Natural resources like fish cannot be harvested short term to a higher extent and not without the danger of depleting it [1]. It is therefore important to focus on projects for growth and long term, sustainable prosperity.

Long-term – independent, democratic and transparent

In the long run there is a need for reforms to ensure two goals: The democratic decision process needs to be more transparent. The financial service architecture has to be organized in such a way that politicians and the common man cannot be taken hostage. We therefore propose to introduce change in the legislative sector by proposing a council of elders, made up of non-politicians from various walks of life.

[1] See IMF - Danger of growth- e.g. Country Report No. 10/305. However the IMF concludes that even with lower growth debt is sustainable.