Iceland's Surprising Recovery

A year ago, it seemed like Iceland might sink into the sea after experiencing what Paul Krugman calls, “The worst financial crisis in history.” And yet its GDP has shrunk less than Ireland’s and some Eastern European countries while it’s unemployment has been lower. What gives? Unlike countries like Ireland and Latvia, which are attempting to deal with their economic woes by austerity and deflation, Iceland’s situation was so bad it had to devalue its currency and implement capital controls. Krugman concludes, “The moral of the story seems to be that if you’re going to have a crisis, it’s better to have a really, really bad one. Otherwise, you’ll end up taking the advice of people who assure you that even more suffering will cure what ails you.”