The I’s Have It
The news has been so bad lately that my brother-in-arms, The Good News Economist, abandoned his post in February and hasn’t been heard from since. And the phone number for Boston’s “Good Newstand” has been disconnected, although I hope it’s still there. If things get any worse, I may disconnect my phone.
For this week’s good news, we escape the confines of the faltering U.S. economy and cast our gaze to Iceland, an early casualty of the 2008 financial crisis. Before the crisis, Iceland’s banks had grown to 10 times the size of the tiny country’s GDP by marketing aggressive interest rates to European savers. Unable to roll over short-term debt in the fall of 2008 and facing mammoth losses, the country’s three biggest banks collapsed and were nationalized by the government, which said it didn’t have enough to pay back the banks’ foreign depositors. But earlier this month, Iceland agreed to pay $11.4 billion from the estate of failed Landsbanki to cover all foreign depositor losses. After two tough years of contraction, Iceland’s economy is projected to grow 2.5 percent this year according to the IMF, outstripping the 1.6 percent forecast for the euro area.
While we’re on the letter “I,” there’s some good news in Ireland, too, where the yield on Irish 10-year government bonds fell sharply from above 14 percent in July to below 9 percent over the past month. The government’s measures to cut spending and increase revenues are restoring investor confidence in the country’s financial stability.
The experience of Iceland and Ireland suggests that countries dealing with banking and sovereign debt crises can put their houses back in order and regain the confidence of investors.
Have a great weekend.
SVP, Chief Economist
Grubb & Ellis
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