Sabina Zawadzki writes: Iceland, whose spectacular 2008 meltdown came to symbolize the greed and mismanagement of the global financial system, is expected to begin unwinding the bankruptcies of its three main banks and lifting controls on the movement of capital in and out of the island within months.
For Iceland, these moves will signal rehabilitation and a return to the international financial community after the collapse of a banking system which at one time held assets worth a staggering ten times the nation’s gross domestic product.
The collapse infuriated some European countries which were left on the hook for billions of dollars in compensation to depositors in failed Icelandic banks, and left Iceland shunned by Western nations in its hour of need.
At the low point in October 2008, Britain used anti-terrorism legislation against the country – forcing international bankers to pick up their bags in the middle of crisis meetings and head to the airport.
Now, Iceland hopes that by finally lifting capital controls it can draw a line under the crisis, restore its credit rating, lower its borrowing costs, boost its economy and revive the living standards of its 330,000 people. But to do so, it must find a way to let investors withdraw funds without provoking a catastrophic stampede.
Officials say they will put rules in place to ensure a managed, not free, float of the currency. The government is considering taxing the removal of cash to prevent an exodus. And it will clip the wings of domestic banks to make sure a similar crisis can never happen again.
“We’re talking here about the third largest bankruptcy in the history of mankind being unwound in one of the smallest countries,” the country’s central bank governor, Mar Gudmundsson, told Reuters in a recent interview in Reykjavik.
“That is just a huge complication in its own right so we shouldn’t be surprised that it is taking some time,” he said. Iceland’s Economic Recovery
