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Heidar Gudjonsson: What is the way out for Iceland?

With its currency down over 70 percent in two years, with 90 percent of its financial sector collapsed, and with its stock index down 95 percent over the same period, what can Iceland do? The political discussion has been confusing at best, and the chaos in the economy is not helping.  Iceland was hit with a triple crisis: first a currency crisis that started in 2006, then a financial/economic crisis that started in October 2008, and finally a political crisis as of this year. The public is angry and confused, but there is a clear lack of leadership and constructive debate within the country. Some people argue that joining the European Union would be the only way out. After Iceland joins the EU, some of the government would be effectively outsourced and a new currency could be introduced by joining the European Monetary Union (EMU).  What this argument overlooks is the time factor. Negotiations with the EU would never take less than one year. Then all the existing 27 members of the Union would need to approve Iceland as a new member. There is currently a waiting list, and Iceland could not be fast-tracked to the front of that list. In fact, given the many problems that the EU is having as it is, the process may take three to four years, at best. To join the EMU, Iceland would need to fulfill the Maastricht criteria of low and stable inflation. But here the track record of Iceland is anything but impressive, having consistently volatile and high inflation of at least twice the criteria, over the internationally low inflation period of past two decades. Iceland would also need to have a very low budget deficit, something the current leftist government is hardly going to meet (the target is below 3 percent but the current deficit is 10 percent). The last big obstacle is government debt.  With the current IceSave agreement, which the government is pushing the parliament to approve, the Maastricht target would be impossible to reach for the next decade or so.

Belinda Cooper: Letter from Berlin — Just the Usual Economic Woes, Plus Culture

At the train station near where I stay in Berlin, there’s a snack vending machine, one that I can only imagine here in Germany. In among the colorfully-packaged chocolates and chips waiting in neat lines, there’s a row of thin, yellow booklets, each one different, that you can buy for one euro. Press the button, and out comes literature—stories and poems, mainly by little-known authors, published by SuKultur, a small Berlin publishing house. Some of them are quite good. That's commuting in Berlin: You can buy a snack, or literature. Reading material was pretty important on the train this past week, because the S-Bahn (Berlin’s overground city train, a part of the German national railway system that also receives subsidies from the city government) was unusually crowded and uncomfortable—a result of an inspection that found many of the cars’ wheels in urgent need of repair and immediately took hundreds of them out of commission. They had been neglected, it seems, due to cost-cutting measures: a reduction in personnel and equipment aimed primarily at increasing the railway’s profitability. This time it wasn’t Berlin’s fault, but the city is chronically short of money and is also saving where it can. Before the fall of the Berlin Wall, West Berlin was a paradox—a heavily subsidized showcase for capitalism—and it’s never quite seemed to get the hang of frugality since the subsidies ended. As the S-Bahn’s top managers were being fired, the papers were reporting that Berlin was about to increase its outlays for culture by 16 million euros (certainly a lovely commentary on priorities). I can’t speak for Frankfurt, where the stock market is, or for the industrial centers of western Germany, where plants are closing or going to government-subsidized, part-time work, but in the capital of Berlin, which has little industry to speak of and has been claiming bankruptcy for years, no one’s really talking about the economy. (A friend who has recently traveled in western Germany assures me that the situation is no different in cities like Hamburg and Munich.) There are various theories about this, but to me, it’s not too hard to explain. As we’ve all heard by now, Germany actually has a social safety net. Despite reductions in recent years, it’s still the case that no German has to go without health insurance after losing a job, people’s pensions are not privatized, and since Germans tend to rent rather than own—a result of tenant-friendly laws and good public housing—there isn’t much danger of losing your home. People are not suffering personally any more than usual, unlike Americans. The social welfare system works, so far.

Jodi Liss: Peruvian People Power

This past month, two resource-rich countries saw political protests turn deadly as the people tried to reign in the autocratic dictates of an incumbent government. One country was, of course, Iran—where every day it seems the government strangles a little more life out of the people’s protests. With 24/7 news coverage of that disastrous election, you might be forgiven for not having heard about what happened in Peru, where for a change, the people won. Beginning in 2008, Peru’s president, Alan Garcia, issued a series of executive decrees to open up 210,000 square miles of the Amazon region, including some land legally protected, to foreign oil, gas, logging, and agribusiness investment. Garcia aimed to develop a multi-billion dollar industry to aid Peru’s growth (not in itself a bad thing) and saw the fertile and resource-rich Amazon as a golden opportunity, simply too good to waste. The president oversaw the signings of dozens of contracts with a wide variety of foreign officials and companies. In retrospect, it's easy to see why Garcia underestimated the vociferousness of his opposition. The Amazonian region is home to only 330,000 indigenous people (roughly 1 percent of Peru’s population) arrayed in some 60 tribes. In general, these Amazonians live in remote areas, speak different dialects, are much poorer than the national average, and lack political or social cohesion. But this time around, the indigenous people were organized and determined. They had spent years getting ready for Garcia's assault on their native land. Decades of negative experiences with oil extraction companies had forced them to come together, and to plan ahead. Past protests had not been taken seriously by Peruvian elites and legislative leaders, who merely ignored their claims or temporarily suspended action until the furor died down. Then, as always, they returned to business as usual.

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