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12 BUSINESS & FINANCE maltatoday, WEDNESDAY, 15 JANUARY 2014 The economic recovery of Iceland: lessons to be learnt What should one expect from a country in which the sentence, "What an a**hole!" is a compliment? Icelanders say "a**hole", or "rassgat", when they tousle a child's hair or greet friends, and they mean it to be friendly. While trudging through a lava field within view of the Eyjafjallajökull volcano, the guide says: "Iceland is the a**hole of the world." That, too, is a positive statement. It's also a geological metaphor. In Iceland, which lies on the Mid-Atlantic Ridge and thus on the dividing line of the North American and Eurasian tectonic plates, the earth has a tendency to relieve itself through various geysers, volcanoes and hot springs. Icelanders were traditionally fishermen and farmers until they decided to turn their country into a casino for global capital around the turn of the millennium. What happened in Iceland from 2008 to 2011 is regarded as one of the worst financial crises in history. But Iceland, with a population of just 320,000, has also staged what appears to be the fastest recovery on record. Since 2011, the gross domestic product has been on the rise once again, most recently at 2%. What's more, salaries are rising, the national debt is sinking and the government has paid off part of the billions in loans it received in 2008 from the International Monetary Fund ahead of schedule. It's a sign of confidence. But how did they do it when others cannot? Can we learn something from Iceland? "At the beginning of the Icelandic Miracle was Germany," says Ásgeir Jónsson, 43, in his office as he bends over a few diagrams. They all snap downward in the fall of 2008 before showing a gradual climb starting in 2010. But why Germany? Jónsson clearly enjoys the surprise on his guest's face. Jónsson was head economist for Kaupthing Bank, one of the three Icelandic banks that leveraged far too much debt and crashed overnight in 2008 following years of unprecedented growth. Billions evaporated instantly while hundreds of thousands of depositors and foreign investors feared they would lose their money. Jónsson's job disappeared as well; with his newfound free time, he wrote the book 'Why Iceland?: How One of the World's Smallest Counties Became the Meltdown's Biggest Casualty'. It was German money, Jónsson says, that flowed the most freely following the liberalisation of Icelandic banks in the 1990s. Still today, Germany is the country's largest creditor, he says. In 2010, German banks had over €20 billion in open claims in Iceland. "Germany has a weakness for Iceland," says Jónsson, who now works as an economics professor in Reykjavik. "Even Wagner borrowed from our legends for his operas," he says. In 2012, the number of German tourists to Iceland, with 65,000 visitors, was in third place behind the US and Great Britain. Iceland's rapid return to health hinged on a series of measures that Nobel laureate Paul Krugman later referred to as "doing an Iceland". Krugman, an admirer of Iceland's dramatic comeback, has recommended a similar policy cocktail for other nations in crisis. The rules are as follows: allow your ailing banks to collapse; devalue your currency if you have one of your own; introduce capital controls; and try to avoid paying back foreign debts. That may sound like an extremely selfserving recipe – and it was. Whereas billions of public money was pumped into the banking system in Ireland so that financial institutions could pay back their creditors, Icelanders voted against this route in two separate referenda. They couldn't see why they should pay for the greed of foreign investors who followed the Siren song of high interest rates to the island nation. Jónsson only shakes his head wearily when asked if he has a guilty conscience. He claims to have been one of the few who warned of the currency bubble long before it burst. Now, he is excited about the country's new opportunities, which are remarkably similar to the ones it has always had. "A hard-working populace. A healthy democracy. A high level of education. Tourism. Natural resources, such as wind, hydro-power and geothermal energy. And fisheries. What would we be without the fisheries?" The Fisherman A powerful-looking reindeer head with a full rack is mounted on Valli Hoskuldsson's wall. On a bookshelf below, there are books on risk management and global finance. Hoskuldsson, a large man with a gentle voice, just returned from a 40 day fishing expedition in the Arctic Ocean on a 60meter trawler, the Reval Viking, during which a couple hundred tons of shrimp and halibut were caught. He began his career as a fisherman, before Icelandic men suddenly entered the financial sector to become investment advisers. Hoskuldsson himself was hired at a local bank called Glitnir, which went on to suffer billions in losses. "I was one of the guys who foisted loans on people," says Hoskuldsson. He remembers well the day that a farmer wanted to take out a mortgage worth 10 million kroner (about €65,000) on a 20-year-old piece of farm equipment. "I went to my boss with my doubts. He just said: 'Give him the money, and if he wants twice as much, give that to him too'." Just a month after leaving his job at the bank, Hoskuldsson was hired as a mechanical engineer on a fishing boat. Today, he views the banking job as a mistake motivated by the promise of high bonuses. It's the way many Icelanders speak of that time: they feel deceived by the country's elite and their big money, the mechanisms of which they hardly understood. Today, fisheries are responsible for some 42 percent of Iceland's exports. Shortly after the crisis, the state opened all of its fishing sites, allowing every citizen to catch and sell up to 650 kilograms (1,433 pounds) per day when fishing is allowed, which has prompted many amateur fishermen to spend evenings and weekends on the water. What could be more Icelandic than a fishing citizenry? Petronav Ltd and Palumbo Shipyards close to reaching out-of-court settlement Legal battle between Petronav Ltd and Palumbo Malta Shipyards Ltd edging towards a closure as legal representatives of both companies inform court an agreement is within reach. Petronav Ltd and Palumbo Shipyards are expected to finalise an agreement, drawing to a conclusion the civil suits both companies filed against each other. Claiming Palumbo Malta Shipyards Ltd had stopped Petronav Ltd from taking out its machinery from the shipyard, the latter had filed a warrant of prohibitory injunction against Palumbo Malta. The warrant, which was temporarily upheld, demanded that Palumbo does not prevent the company from retrieving its machinery from the shipyard. The company wanted to terminate its contract with Palumbo after the shipyard fell back on payments. Since July 2010, Palumbo always paid on time, however the shipyard had around €1.6 million in outstanding payments with Petronav Ltd. However, yesterday morning, Petronav's lawyer Kenneth Grima informed Madam Justice Lorraine Schembri Orland that both companies were close to signing an agreement both sides agreed about. The two lawyers asked for a postponement of the sitting in order for the parties to have enough time to seal the deal. Madam Justice Lorraine Schembri Orland upheld the request and postponed the sitting for 30 January.

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