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Top Economists: Iceland Did It Right ... And Everyone Else Is Doing It Wrong

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[The] decision not to make taxpayers liable for bank losses was right, economists say.

In other words, as IMF put it:

Key to Iceland's recovery was [a] program [which] sought to ensure that the restructuring of the banks would not require Icelandic taxpayers to shoulder excessive private sector losses.

Icenews points out:

Experts continue to praise Iceland's recovery success after the country's bank bailouts of 2008.

Unlike the US and several countries in the eurozone, Iceland allowed its banking system to fail in the global economic downturn and put the burden on the industry's creditors rather than taxpayers.

***

The rebound continues to wow officials, including International Monetary Fund chief Christine Lagarde, who recently referred to the Icelandic recovery as "impressive". And experts continue to reiterate that European officials should look to Iceland for lessons regarding austerity measures and similar issues.

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Barry Ritholtz noted last year:

Rather than bailout the banks -- Iceland could not have done so even if they wanted to -- they guaranteed deposits (the way our FDIC does), and let the normal capitalistic process of failure run its course.

They are now much much better for it than the countries like the US and Ireland who did not.

Bloomberg pointed out February 2011:

Unlike other nations, including the U.S. and Ireland, which injected billions of dollars of capital into their financial institutions to keep them afloat, Iceland placed its biggest lenders in receivership. It chose not to protect creditors of the country's banks, whose assets had ballooned to $209 billion, 11 times gross domestic product.

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"Iceland did the right thing ... creditors, not the taxpayers, shouldered the losses of banks," says Nobel laureate Joseph Stiglitz, an economics professor at Columbia University in New York. "Ireland's done all the wrong things, on the other hand. That's probably the worst model."

Ireland guaranteed all the liabilities of its banks when they ran into trouble and has been injecting capital -- 46 billion euros ($64 billion) so far -- to prop them up. That brought the country to the brink of ruin, forcing it to accept a rescue package from the European Union in December.

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