Interesting about Iceland

In 2008, Iceland’s three banks fell apart, with knock-on results that still have Europe in crisis. With only about half a million inhabitants, there was no way the little country could push enough cash into its banks to keep them going, so it abandoned the effort and let them fail – though it concentrated on making sure that Icelandic depositors got their money back. The foreign investors, who had been seduced by the charm of high interest rates, would simply have to wait. The Icelandic stance was one of total default.

It worked like a charm. Alexandra Topping, writing a Guardian piece from Reykjavik on November 24th, said the real shift has been cultural rather than economic. Icelanders realised quickly that basing their lives on constant purchasing was a non-starter. Interest in money as a way of making money melted away like snow in spring, and the financial sector withered to a fifth of its previous size. Conversely, the government put all the funding it could into the creative industries, and there is renewed interest in Icelandic heritage and culture. As a result, tourism rose by 8.3% last year. Across Iceland, unemployment has halved, and the income is far more equally spread than it used to be. They have just completed a magnificent concert hall called the Harpa, and the Icelandic economy is set to grow by 2.7% this year, while most European countries are glumly foreseeing a further contraction of 0.3%. Poor, wretched Greece must be gazing north in wistful envy.

Westminster, of course, is not gazing anywhere except into its own complacent mirror. Iceland broke all the rules but hung on doggedly to its social welfare programme and its arts, but far from being a disaster, the policy has proved a triumphant success. Something to be learned from that, one would think? Nice idea. But don’t hold your breath.