Iceland does not face another bust, but its economy looks lopsided

No eruptions on the horizon

GOOD times are rolling again in Iceland. In June it beat England in a football match. On The Economist’s “glass-ceiling index”, it is the world’s best country for working women. And the economy is purring. After a thumping crash in 2008-09, GDP is expected to grow by 5% this year, faster than any other rich economy. The ruling (conservative) Independence Party has been rewarded: it won 30% of the vote in the election in October, more than any other party. But some fret that Iceland’s economic stability is, again, built on molten lava.

The biggest worry is over its treatment of foreign creditors. When the crisis hit, the country slapped on capital controls, protecting the krona by preventing investors from pulling capital from the country. Recently the government has been loosening restrictions. Icelanders may soon no longer have to present airline tickets in order to buy foreign currency for their holidays.

One group of foreign investors, however, accuses Iceland of, in effect, defaulting on its debts. They own offshore, krona-denominated, assets worth...Continue reading

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