The political and economic situation of Greece & Iceland – a Panel Discussion with Schuberth/Önnudóttir/Nezi

Aug 16, 2017 by

by Wajdi Belloumi & Mouloud Chahid

The financial crisis both in Greece and Iceland represent a good example to study about the global financial crisis of 2008. The different impacts of the financial crisis can be perfectly analysed through the case studies of Greece and Iceland.

On Tuesday evening, Helene Schubert, Spyridoula Nezi and Eva H. Onnudottir debated during a public event all about Greece and Iceland’s development since the financial crisis. The panel started with welcoming the audience and the panellists. The moderator then asked Helene about the origins, political context and measures taken to mitigate the financial crisis in Greece and Iceland. Helene started her intervention by talking about the economic situation in the countries before the economic crisis. She said that both countries have received a rescue package from the International Monetary Fund (IMF). She argued that the starting situations were different in the two countries. Helene continued with the evolution of the crisis. She said that Iceland was the first victim of the global financial crisis in 2007. Its currency started to depreciate because the financial market lost confidence in the Icelandic banking system since there was an unsustainable economic boom. The Greek crisis started later in 2009. Greece had accumulated large debts in the private as well as in the public sector. All of a sudden, investors mistrusted the government and started to sell off government bonds. According to Helene, what made the difference is that the Icelandic authorities installed a new management in the banks and separated them into a domestic and foreign part. Moreover,  because of the institutional frame the IMF rescue packages for Greece and Iceland were different. On the one hand,  Greece, had an obligation to consolidate immediately. On the other hand, Iceland was allowed to make a short-time deficit. Further, the flexibility of the exchange rate also enabled to increase exports and helped to recover the economy. Capital controls further ensured that capital couldn’t flow out of both countries. Greece, on the other hand, has concluded three rescue packages. The first one was in 2010 and the Greek government was forced to severely consolidate.  At the same time, the banks had to recapitalise with public money.

Nezi, while discussing the crisis in Greece, emphasized that one of the main challenges that Greece and Europe faced was the timing. The EU was not ready to deal with the crisis in Greece. Moreover, the impact of the crisis was first in the economical and social spheres, in particular with regards to unemployment among youth and its effects on migration. All of that led to political instability, which was also another element that frightened the EU because of the history of the country with dictatorships.

Concerning Iceland, Onnudottir presented the main reason behind the crisis, namely the default of the three private major banks at the end of 2008 because of their failure in refinancing their short-term debt. But she focused on analysing the political situation that accompanied the financial crisis and how the people of Iceland responded when they became aware of the outbreak of the financial crisis. Icelanders were very responsive to the financial crisis and their manifestation led to the resignation of the government and early election. Not only that, but also one of the biggest impacts of the financial crisis on the political sphere was the emergence of new parties and the disappearance of old ones or the loss of support for them.

Last but not least, the panelists during their discussion also compared the situations in Greece and Iceland. The former is still suffering from the financial crisis, while the latter was able to overcome it in three years. The success of Iceland was due to different factors, but mainly due to the fact that it had a larger margin of freedom to implement its own strategy without a substantial intervention from the EU or IMF. It had its own currency and less public debt, unlike Greece that faced many obstacles.

During the panel, the audience engaged with many questions and especially summer school students had the opportunity to critically engage in the subject. At the end of the panel, the panellists had the opportunity to sum up their interventions and give their final analysis about the two case studies as well as what were the unspoken reasons behind the political and economic crisis in Greece and Iceland.