I was, I think, one of the first commentators to notice years ago that a funny thing was happening in Iceland. The nation that was supposed to be ground zero for financial disaster was actually having a milder crisis than many others, thanks to heterodox policies: debt repudiation, capital controls and massive devaluation.
Now, as Matthew Yglesias at Vox recently pointed out, Iceland is getting ready to lift its capital controls, and its experience since the financial crisis still seems remarkably good, considering the circumstances.
And, as Mr. Yglesias wrote, the interesting contrast is Ireland, which is now being hailed as a success story for austerity because the country’s economic situation eventually stopped getting worse and has lately been getting a little better. Talk about lowering the bar.
I suppose someone will ask about possible parallels with Greece. Well, if Greece is forced out of the euro, the country will be in a position to try an Iceland-style devaluation (and will surely impose capital controls). Whether this will work as well as it did in Iceland is an open question – for one thing, leaving the euro is very different from never having joined it, and I’m still hoping that the whole Grexit thing can be avoided.
For now, let’s just say that heterodoxy is sometimes much more effective than the orthodox will ever admit.
“Grexit” Crunch Time
Some readers have noted that I haven’t said much about the Greek crisis lately. Indeed. It’s crunch time, and right now everyone involved needs to engage in quiet, cool deliberation.
There’s really nothing more outsiders can say, at least in public, that we haven’t already said.