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Want To Ruin Your Own Country? Assume Your Banks’ Liabilities

But in the fall of 2008, the two countries’ fates diverged: On the one hand, Iceland’s people refused to have their government be saddled with the debt of their insolvent banks, Landsbanki and Kaupthing and the others. The Icelanders requested an IMF bailout to the tune of $2.1 billion (compared to their GDP of $12 billion). But they refused—vociferously—to be saddled with the debts of their banks. Chilling in Iceland. What were the consequences? The Krona suffered an 80% devaluation, interest rates went to the moon. Unemployment spiked from 6% to 9.3% in a month . . . . . . but it wasn’t that bad. It wasn’t fun, but it wasn’t the end of the word, either. Even with severe austerity measures that included higher taxes on all sectors of the economy and severe cuts in public services, unemployment reached only 9.6% at its worst point, averaged 8.8% during 2009, and is now only 7.6%. Source is here. On the other hand, what did Ireland do?

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