According to CNN journalist Cyrus Sanati, “the inevitable unmasking of Iceland’s dubious economic recovery could have severe consequences for the rest of Europe, leading to yet another panic on the continent.”
Photo: Páll Kjartansson/Iceland Review.
“… the nation’s zombie banks have managed to avoid total collapse thanks to delay tactics that have allowed them to avoid settling with their creditors,” Sanati writes in an article entitled ‘Iceland is Europe’s ticking time bomb – again.’
“Iceland’s economy appears as if it has rebounded, growing faster than most of its European cousins. Unemployment has fallen sharply from a peak of 8% in 2009 to around half that today. At the same time, consumer confidence in the country is growing, as is tourism, which is one of the two major industries in Iceland, the other being fishing. All in all it seems that Iceland has recovered, at least that is what most economists and even the IMF say,” he continues.
But Iceland’s government has made little if any progress in tackling its economic issues and have only delayed the pain, Sanati argues, pointing out that capital controls are still in effect in the country.
“… Meanwhile, high interest rates have made borrowing expensive. A moot point, considering Iceland’s now-zombie banks aren’t really lending; they are too busy dealing with fallout from the billions of krona worth of bad loans on their books,” he writes.
Sanati warns that investors are waiting to see what Iceland’s government does next. “If it begins to falter, the rest of Europe could be next.”
When asked for his response to the article, Minister of Finance Bjarni Benediktsson told Viðskiptablaðið that he would not respond to “such doomsday predictions.”
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