Iceland's big problem: bringing 4% unemployment down to 2%
by digby
At one time there was a big debate about whether or not Iceland came out on top during our current depression, largely due to it's hard core treatment of its banks. It was always pretty obvious that they made the smarter decision. It looks even more obvious today:
Iceland let its banks fail in 2008 because they proved too big to save.
Now, the island is finding crisis-management decisions made half a decade ago have put it on a trajectory that’s turned 2 percent unemployment into a realistic goal.
While the euro area grapples with record joblessness, led by more than 25 percent in Greece and Spain, only about 4 percent of Iceland’s labor force is without work. Prime MinisterSigmundur D. Gunnlaugsson says even that’s too high.
“Politicians always have something to worry about,” the 38-year-old said in an interview last week. “We’d like to see unemployment going from where it’s now -- around 4 percent -- to under 2 percent, which may sound strange to most other western countries, but Icelanders aren’t accustomed to unemployment.”
The island’s sudden economic meltdown in October 2008 made international headlines as a debt-fueled banking boom ended in a matter of weeks when funding markets froze. Policy makers overseeing the $14 billion economy refused to back the banks, which subsequently defaulted on $85 billion. The government’s decision to protect state finances left it with the means to continue social support programs that shielded Icelanders from penury during the worst financial crisis in six decades.
We, on the other hand are making nearly 7% official unemployment (along with many millions not even being counted) the new normal. And we're slashing our meager safety net, even food assistance. But our megabanks are doing very well which is what matters.
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