This interview I’m sharing occurred during the annual meeting of the World Economic Forum in Davos Switzerland in 2013, about five years after the 2008 bank bailout.
The person being interviewed is Ólafur Ragnar Grímsson, who was President of Iceland from 1996 to 2016 (he is the longest serving President of Iceland). I do not know the identity of the journalist.
After the 2008 great financial crisis, Iceland did NOT bail out its banks and might be the only country to not have done so.
If we consider that the 2008 financial crisis was the result of predatory lending practices (because it was) Iceland bailed out the victims of these activities (the people) rather than the perpetrators of them (the bankers).
In this interview, Grimsson explains very clearly the advantages Iceland experienced as a result of the approach they took.
So far, the only bit of hope that’s come out of THIS Davos conference this year is from the Icelandic President, who is standing alongside me: Ólafur Ragnar Grímsson.
Mr. President, why are you such a beacon of hope, why has Iceland survived where Europe has failed? What are you doing differently?
I think it surprises a lot of people that four years ago we were exhibit #1 of a failed financial system.
But now we are back on recovery with economic growth and very little unemployment, and I think the primary reason is that were wise enough to realize this was also a fundamental social and political crisis.
But [garbled] we didn’t follow the traditional prevailing orthodoxies of the western world in the last 30 years.
We introduced currency controls, we let the banks fail, we provided support for the poor, we didn’t introduce austerity measures on the scale you’re seeing here in Europe, and the end result four years later is that Iceland is enjoying progress and recovery very different from the other European countries that suffered from the financial crisis.
But with your policy of letting the banks fail, would that have worked for the rest of Europe?
I think so because as I’ve often asked people… Why do they consider the banks to be the holy churches of the modern economy?
Why are private banks not like airlines and telecommunications companies, allowed to go bankrupt if they have been conducted in an irresponsible way?
The theory that you have to bail out banks is a theory about bankers enjoying for their own profit a success and then letting ordinary people be the failure through taxes and austerity, and people in enlightened democracies are not going to accept that in the long run.
It would work for the UK with their reliance on the financial sector, wouldn’t it?
Well, this is an interesting question because one thing we learned after the collapse of the banks in Iceland was the Icelandic banks, like the British and the Americans and other banks have in fact become high-tech companies hiring engineers, mathematicians, computer scientists.
And when they failed, the innovative sectors of our economy, the IT sector, the high-tech sector, in fact, blossomed and have been doing much better the last three years than ever before.
So the lesson of that is that if you want your economy to be competitive in the innovative sectors of the 21st century, a strong financial sector that takes the talent from these sectors is, even a successful financial sector, is in fact bad news if you want your economy to be competitive in the areas which really are the 21st-century areas: innovation, technology, IT.
President Grimsson, thank you very much.
Thank you very much.