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Iceland's "Loonie" Idea
Because Greece and the rest of the Eurozone are in one hell of a financial mess.
And, as I and many others have said before, the Greek Crisis is just the first round of what will likely prove to be a total collapse of the euro as a currency.
But many forget that before the Greek Crisis began, another European country had their banking sector collapse and faced an economy-threatening debt crisis all the way back in 2008…
And that country was Iceland.
But Iceland’s response to its debt crisis was much different than what the Greek’s and the Eurozone’s has been.
In a nutshell, Iceland decided that rather than prop up their failed banks, they would simply let them fail.
And many of their banks did just that.
Iceland’s government wasn’t rich enough to bail out the banks, and they had no intention of making the taxpayer pay for their banks’ failures either…
Benefits of Financial Sovereignty
But there was one other crucial aspect to Iceland’s financial system that has made all the difference…
They have financial sovereignty.
That is, they control their own currency.
Because of that, Iceland was able to make an independent decision on how they would resolve their banking crisis.
An unlike Greece and the Eurozone, Iceland decided that they would default on the many billions that their banks owed international banking creditors.
Iceland’s decision did two things:
- It did not provide any bailout for their own banks, which resulted in their financial sector shrinking by 80%, and
- It put the debt burden squarely on their banks’ creditors, not on the people of Iceland.
After 4 years of struggle, their country has stepped back from the brink of bankruptcy…and the economy is on the path to recovery.
And just as important, their social fabric remains intact…
No riots in the streets, no banks burning, no mass civil unrest…
Just some tough years for the Icelanders as they continue to work their way back to solvency.
Of course, the unemployment rate went way up…
As did personal debt to income ratios…
But the bottom line is that the country is getting its financial house in order.
What’s more, Iceland’s response to their debt crisis is now held up as a model by many, including the International Monetary Fund, as the right way to resolve a financial crisis…
While Ireland and Greece’s responses have been shown to be the worst ways to handle a debt crisis.
One of the keys to Iceland’s response was that they had a choice….
They could either bailout their banks by taking on hundreds of billions in more debt that their economy may never be able to payoff…
Or they could do the rational thing, which was to default on their debt and set about rebuilding their economy.
The Greeks, you may recall, were going to have a choice, too.
Then-Greek Prime Minister Papandreou called for a referendum to allow the Greek people to vote between the Eurozone austerity measures or default…
But that referendum was never allowed to happen.
Had it been, the Greek people most likely would have chosen to default on their debt and exit the euro.
They still would be in very tough economic times, but they would have returned to their own currency with their independence.
But before a referendum could take place, Papandreou was quickly forced out of power by the big money boys in Brussels…
And Greece was yoked to the tough austerity plan that it is crumbling under today.
So, as Greek society suffers chaos, violence, and hardship…
German debt collectors relieve the Greek treasury of its all of its gold reserves…
Leaving Greece virtually penniless.
Iceland and The “Loonie”
The differences between Iceland and Greece could not be clearer.
Now, Iceland has another decision to make.
Because they are still not done restructuring their financial system...
In fact, while most of Europe’s eyes are fixed upon the Greeks and the latest bond swap deal, which I covered yesterday in The Gorrie Details…
And the never-ending saga of their decline and descent into economic underworld…
Iceland is thinking outside the box again…
Today, it is seriously considering dropping its national currency, the krona, for Canada’s dollar, affectionately known as the “Loonie” because of the loon on its one dollar gold piece.
Why would Iceland do this?
After all, even though Iceland is located in the middle of the North Atlantic, it is, by ancestry and custom, a European country.
And, truth be told, it has also considered the euro as a replacement currency.
But sounder minds think the Canadian dollar makes more sense.
Why would Iceland want to use the euro anyway? It’s a dying currency and to use it would likely require Iceland to give up much of their sovereignty.
Why would they want to do that?
Besides, Iceland has more in common with Canada than you might think. Both countries are natural resource rich, both export oil and other commodities…
And the Canadian dollar is a very sound and stable currency backed by their multi-commodity economy with great prospects for more arctic oil and aluminum production.
Also, Iceland views Canada as a young USA, with tremendous under-used land and resources. The Canadian dollar reflects this stability and economic potential…
It’s no wonder that Iceland wants to use it as their currency, too.
But what about Iceland adopting the US dollar as their new currency?
They thought about it for a moment or two, but then decided that to do so would be just plain…loony.
And those are…The Gorrie Details.