Saturday, September 1, 2012

The Iceland and Ireland Banking Crises: Lessons for the Future | Mercatus

Tyler Cowen writes

When the tale of these two crises is told, the conclusion is typically that one set of policies was more beneficial than the other. In this paper we have shown that the truth lies somewhere in the middle. Icelanders have benefited by evading a debt overhang through an undue bank bailout that has shielded entrepreneurs and investors from losses. The Irish commitment to open capital flows and willingness to reduce domestic prices to regain competitiveness has allowed prices to return to levels necessary for entrepreneurs to use as signals to invest. Countries facing similar crises—be they currency, banking, or general economic crises—would be well-advised to heed these two lessons when drafting recovery plans of their own.

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