There are plenty of lessons to be learned from the way that Iceland has dealt with the consequences of the worldwide financial collapse. Iceland has worked to reduce (or cut) its dependence on the banking and finance sector of its economy, recognising that this sector is essentially unproductive, essentially short term in outlook and draws talented people away from more productive parts of the economy.
Iceland faced with the collapse of its major banks (in 2008) something that threatened to drag the state’s public finances down. The Icelandic Krona fell 50% against all major currencies, as unemployment roared up to 10% (not forgetting that this in a country where it had previously been negligible) and money flew out of the country at a truly scary rate.
The financial storm was weathered with capital controls (something the European Union Single Market prohibits) to stop the disappearance of cash. Around 100 new taxes were brought in and public spending slashed to the bone. Iceland borrowed money from its Scandinavian neighbours and the International Monetary Fund.
The one big difference was that Iceland let its privately owned banks, which were directly responsible for the crisis in the first place, die. Despite years of bullish talk from the City of London at the first sign of real trouble most (but not all) of the big boys went whining to Westminster for a bailout (which they got). In my opinion we would have been better off if Westminster had said no, you want to life by the market then you can die by it too! In Iceland’s case this meant that investors lost everything it crucially meant that taxpayers were not burdened with their banking debt.
Oddly enough in the darkest depths of the economic crash, following the collapse of the financial sector Icelandic businesses found that they had few problems when it came to recruiting highly skilled graduates. Iceland's businesses had previously struggled to recruit skilled graduates as they were being attracted to the bonus-paying banks, with the demise or reduction of that essentially unproductive sector they found the scientists, IT graduates and engineers that they required.
Any nation’s primary resource should be its people, this is something that Iceland, but not every state has recognised. Iceland is also blessed by a handy supply of cheap clean energy – something that reduces the country’s dependence on imported oil and gas. Around 99% of the Iceland’s energy needs are supplied from hydroelectric sources or hot thermal springs.
There are even proposals to export this renewable power via cables under the sea to Denmark or even Britain. This abundant cheap energy has brought financially important industries (and jobs) such as aluminium smelting, which uses significant quantities of electricity to convert bauxite (shipped in from Australia) into aluminium products in the country.
The Icelandic people have still paid a hard price for the financial collapse with renewed emigration and austerity, but, the country has just gone through the seventh straight quarter of economic growth (averaging at 2.5%) this is something most European governments would give their hind teeth for. Additionally Icelandic unemployment has dropped to slightly just under 5% something that suggests that a degree of economic confidence has returned – can we say the same here?
One significant difference between Iceland and the rest of the world is the fact that some of the bankers and the politicians responsible for the economic disaster ended up being charged for it (and in some case duly convicted). In the immediate aftermath of the crash, as the country's unemployment rate and inflation in Iceland sky-rocketed all hell broke loose on the political front. There was a huge wave of angry public protests and the then Prime Minister Geir Haarde’s government fell in 2009 and the former PM was duly charged with negligence and got his day in court.
Icelandic democracy remained vibrant despite the economic crash, in the March 2010, Icelandic voters rejected overwhelmingly via a referendum the proposal to pay the UK and the Netherlands 4 billion euros (£3.4 billion) they lost when the Icesave bank collapsed. In December 2010, Iceland the UK and the Netherlands agreed a new repayment deal. The country's parliament (in February 2011) voted yes to a new plan to repay the UK and the Netherlands for reimbursing 400,000 citizens who lost their savings in the collapse of Icesave's parent bank, Landsbanki.
Iceland's president, Olafur Grimsson, duly put the deal to a public vote. Back in April 2011, the voters of Iceland once again rejected the repayment deal in a referendum. The Icelandic citizen’s view was that they should not be made to pay so much for their banks' bad decisions. Now this is a feeling that I suspect is shared by most of us, save for our elite who are busy making the rest of us pay off their mistakes and the mistakes of their friends in the City.
What are the real lessons from Iceland for Wales or anywhere else for that matter? Don’t let your economy get driven by a voracious and grossly irresponsible financial sector might be the first. Invest in the skills of your workers might be another lesson. Don’t be dependent upon imported energy suppliers and develop and retain control of your own sustainable renewable energy resources, we may not have hydrothermal power resources but we do have significant potential for developing renewable energy (onshore and off shore) which could provide us with a good reliable base for a sustainable economic future.