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Why can't all of these countries take a page from Iceland? I mean, in 2008 it defaulted on the ridiculous amount of debt they had, and now, 4+ years later, are improving their international credit rating, and building their economy. I would speculate from articles that I've read that they're at least back to where they were prior to the collapse.

A Link: http://www.independent.ie/business/irish/dan-white-the-econo...

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I recently came across this blog post from an Icelander that paints a more complicated picture of the Iceland financial story. Long, but worth a read for a different perspective.

http://studiotendra.com/2012/12/29/what-is-actually-going-on...

Interesting. I've heard of the Icesave lawsuits, but this paints a much more interesting picture. Thanks.

Iceland is a blip, it's irrelevant to the global economy. If it were a city in Europe it would be something like the 92nd largest city. As a country it's even smaller and less relevant than Luxembourg.

When a country of 320,000 people defaults on their debt it doesn't have significant global consequences. When you start defaulting on debt on behalf of 50, 100, or 150 million people then it starts having very serious consequences on the creditors, on financial markets, and so forth.

So you'e saying this approach wouldn't have worked? Too bad a larger country didn't try. You're also neglecting the fact that, while Iceland is unique, they had unique challenges that other nations wouldn't, like importing a lot of stuff.

I'd like to see some explanation as to why this wouldn't work with a larger nation and not simply, because.

Argentina (pop. 40m) did, and seemed to get away with it for a while thanks to the commodities boom and dodgy statistics, but after a decade the chickens are coming home to roost.

If you are talking about the Argentine economic collapse around the turn of the century then I would suggest that's not the best example. There are some serious horror stories about total loss of civil authority and rule of law there during that period, in addition to the riots bordering on outright revolution.

The problem I have with this argument is that while everybody suggests Iceland is too small, nobody is brave enough to suggest at what the magic line that cannot be crossed is. Is Ireland too big? What about Greece? Japan? the UK?

I fail to see how a credit writedown for both debtor and creditor suddenly becomes unworkable when it crosses an imaginary population or gross debt line. Plenty of very large companies have undergone debt restructuring and survived to tell the tale. GM was one of the largest companies in the world and the debtors and creditors + equity holders all got wiped out or were given a severe haircut. If the same argument was followed someone would point to a smaller company and say ; well, they are small, it's OK to default. But that big company, no, that's too big.

Nobody pretends that calling an unsustainable and unpayable debt defaulted is a pleasant experience, but it's better to put zombies to the death rather than have them zombie-walking around the economies of the world. If the debt can't be paid back, adding more debt to it is never going to get solved. Anyone who suggested that fixing GM with another set of super-sized loans would have been laughed out of the room - they couldn't make the payments as it was. Yet someone this makes the magic jump from company to country and it's considered sound advice.

Well, not to me.

Oh, I'm not saying that default isn't an option, it might even be the best option. But the idea that it's a good or even "ok" option is a faulty one. The game right now is finding the best bad option to work with.

Two reasons: 1) Iceland has its own currency, so it has a lot more discretion over its monetary policy. 2) If Greece defaults, investors would assume that Spain, Portugal, etc. will also default. Hence their borrowing costs will almost certainly skyrocket, forcing them to default. This would probably cause bank failures. Being part of the Euro magnifies the contagion immensely. The Economist has had a few articles about default and they've recommended it, but managing the process so that it doesn't cascade is tricky.

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