In short, Iceland’s leaders defied the austerity orthodoxy, and to good effect.

According to a 2015 IMF report, all of Iceland’s key economic indicators are trending in the right direction. Economic growth was projected at 3 percent for 2015. The inflation rate, below 1 percent, was expected to inch up to 2.5 percent, averting the risk of deflation. The 2014 budget surplus was 1.8 percent of GDP, the current account 4.7 percent. Real wages increased by 5.8 percent during that year and unemployment, which peaked at 8.3 percent in 2010, had fallen to 4.1 percent. Non-performing loans, 40 percent of GDP in 2009, had dropped below 10 percent. The IMF’s assessment contained caveats and warnings to be sure, but it depicted a remarkable comeback, which was underscored by the government’s announcement in June that it planned to lift capital controls.

Iceland’s revival comes up these days because of the Greek mess. Alas, the Icelandic remedy won’t revive Greece.  

First, Iceland’s was a financial crisis, not a fiscal one. Iceland’s taxation and budget policies and figures were fundamentally sound; there was no evidence of profligacy or recklessness on the part of the state. (The government failed to supervise the financial picture, but that’s another story.)

Second, though corruption certainly marked Iceland’s years of excess, it has never been the deeply rooted, omnipresent problem that it has long been in Greece. Nor is tax evasion chronic and pervasive. Transparency International, which ranks countries from least to most corrupt, places Iceland 12th, and Greece 69th in a list of 150 countries.

Third, though Iceland did require a $2.1 billion loan from the IMF in 2001, that sum is paltry compared to what Greece owes the IMF, the European Central Bank, and the Eurozone countries: $271 billion.

Finally, Iceland has its own currency and hence an independent monetary policy. The European Central Bank and the euro decide Greece’s, and that makes devaluation impossible. Icelanders were certainly pinched by the krona’s fall after the crisis. The exchange rate plunged from 1:55 against the dollar in 2006-2007 to about 1:225 in late 2008, before recovering and stabilizing at around 1:130 after 2009. Imports became pricier, as did euro-denominated mortgages. But exports, tourism, and foreign investment were boosted. The positive effects will be apparent to anyone who visits Iceland today.

Iceland’s brush with economic disaster offers salutary lessons about the hazards of casino capitalism, greed, and arrogance. And it vindicates the values of Laxness and Bjartur. Alas, it does not offer solutions that Greeks can use so long as they are tied to the euro.

Rajan Menon is Anne and Bernard Spitzer Professor of Political Science at the Colin Powell School of the City College of New York/City University of New York and a Senior Research Scholar at the Saltzman Institute of War and Peace at Columbia University. His most recent book (coauthored with Eugene B. Rumer) is Conflict in Ukraine: The Unwinding of the Post-Cold War Order (MIT Press, 2015); his next book, The Conceit of Humanitarian Intervention, will be published by Oxford University Press in 2016.

Image: Flickr/manumilou