When the financial crisis hit Iceland seven years ago, Gudmundur Kristjansson, a 55-year-old fisherman with a wide smile, weathered face and mischievous eyes, almost lost his business. Interest payments on his loans soared 300 percent. He had to sell his two fish factories and two of his five fishing boats. “We didn’t invest for many years,” he said, “because we were only paying interest.”
His tribulations were shared by the whole country. After Iceland’s three largest banks fell in the space of three days, the currency collapsed, the stock market fell 95 percent and nearly every business on the island was bankrupt.
Short-term suffering followed, but today, Iceland is buzzing: Unemployment is 4 percent, the International Monetary Fund is predicting 4.1 percent G.D.P. growth for 2015, and tourism is booming. Mr. Kristjansson has just bought Nanoq, a used boat from Russia that recently was being prepared for a fishing trip to Greenland.
But just as Iceland returns to the fold, Europe is again bracing for a financial catastrophe in a renegade nation. Greece, having missed crucial debt payments, has in recent days moved closer than ever to an exit from the euro. Leaving the common currency — and having to suddenly create its own new money — could plunge Greece into an even deeper economic downturn.
The Greek people may vote for a deal with the creditors in a referendum that is scheduled for Sunday, and Greece and Europe may have announced the contours of a settlement before then.
But even if that happens, uncertainty will hang over Greece for a long time, raising important questions about whether it makes sense for a country to go it alone, as Iceland did.
Iceland is not Greece. As a tiny island with a population of 320,000, it was able to muster political will more easily than most countries. (Meeting the prime minister is no big deal to locals.) Greece has a population of 11 million, a gross domestic product that is $242 billion, or 16 times Iceland’s, and a history of political antagonism and government corruption. The two countries blew themselves up, though in different ways. Greece, as a nation, spent too much; in Iceland, the private banks went on a bender that ended badly.
But Iceland came out the other side of disaster in part because it had its own currency, which devalued, and it imposed draconian capital controls. If Greece ends up with its own currency, it would most likely descend into an economic Hades in the months after dumping the euro before even having a chance to emerge on the other side.
Yet, even as Iceland is in the bloom of health, its comeback is about to be tested again. The government recently announced it would start to lift capital controls imposed at the peak of the crisis. Meant to last a few months, the controls have been in place for seven years, creating a shelter under which Iceland has mostly thrived.
Their success, paradoxically, has made their removal all the more precarious.
“They worked better than anyone expected them to work,” said Sigmundur David Gunnlaugsson, the prime minister. “But they of course are not a sustainable situation for an economy.”
The Aftermath of the Collapse
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