Letting banks fail kept Iceland’s 2012 debt-to-GDP ratio at 99 percent

Evidence

Allowing the banks to fail meant that they were less of a financial drain on the state. Their recapitalization cost close to 20 percent of Iceland’s GDP26—a massive sum for such a small country, but an awful lot less than the still-growing Irish bailout via NAMA. Iceland’s debt-to-GDP ratio in 2012 stood at 99 percent, a figure that would have been much higher had the banks been bailed out. Instead of austerity, the government pursued an expansionary policy behind these capital controls for the first year, followed by an evenly distributed fiscal consolidation. Everyone tightened their belts as the cuts were accompanied by a shift to a more progressive tax code that included substantial tax hikes for top earners and measures to help lowand middle-income families. — Mark Blyth, Austerity, 644

Categorization

• XREF: Directly comparanda to the Irish NAMA bailout, a central case in the austerity literature. — connects to: Letting banks fail reversed Iceland’s two-decade inequality surge — Mark Blyth, Austerity: The History of a Dangerous…, 647; Iceland recovered quickly despite higher taxes after letting its banks fail — Mark Blyth, Austerity: The History of a Dangerous…, 645

Broader Connections

• Letting banks fail reversed Iceland’s two-decade inequality surge #expands (0.75) — Mark Blyth, Austerity, 647
• Iceland recovered quickly despite higher taxes after letting its banks fail #corroborates (0.70) — Mark Blyth, Austerity, 645