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Separating the Wheat from the Chaff: Icelandic and Irish Policy Responses to the Banking Crisis

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  • David Howden

Abstract

When the tales of the Icelandic and Irish crises are told, they are framed as if one country did everything right to exit recession. In this paper I assess their recovery policies and find that the truth lies somewhere in the middle. By allowing its banking system to suffer substantial losses, Iceland shielded its citizens from the costly debt overhand apparent in Ireland. Ireland’s commitment to open capital markets and price deflation has allowed trade flows to remain robust, and relative prices to realign to signal sustainable production plans to entrepreneurs. These lessons provide a roadmap for other countries entering similar crises in the future.
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Suggested Citation

  • David Howden, 2013. "Separating the Wheat from the Chaff: Icelandic and Irish Policy Responses to the Banking Crisis," Economic Affairs, Wiley Blackwell, vol. 33(3), pages 348-360, October.
  • Handle: RePEc:bla:ecaffa:v:33:y:2013:i:3:p:348-360
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    File URL: http://hdl.handle.net/10.1111/ecaf.12044
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    References listed on IDEAS

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    1. Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi Rõõm, 2015. "Why Firms Avoid Cutting Wages," ILR Review, Cornell University, ILR School, vol. 68(4), pages 862-888, August.
    2. Stephen Kinsella, 2012. "Is Ireland really the role model for austerity?," Cambridge Journal of Economics, Oxford University Press, vol. 36(1), pages 223-235.
    3. Philipp Bagus & David Howden, 2011. "Monetary equilibrium and price stickiness: Causes, consequences and remedies," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 24(4), pages 383-402, December.
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    Cited by:

    1. Howden, David & Gabriel, Amadeus, 2015. "The Interest Rate Brake on Maturity Transformation," MPRA Paper 79793, University Library of Munich, Germany.
    2. Howden, David, 2013. "The Rise and Fall of the Icelandic Economy," MPRA Paper 79603, University Library of Munich, Germany.
    3. Howden, David, 2013. "The Icelandic and Irish Banking Crises: Alternative Paths to a Credit-Induced Collapse," MPRA Paper 79602, University Library of Munich, Germany.
    4. Bagus, Philipp & Howden, David, 2014. "Fiscal Considerations of Central Bank Recapitalization," MPRA Paper 79606, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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