From the
Washington Post:
"Iceland's recovery has become a myth wrapped in a legend inside a legend. It let its banks fail, slashed household debt, let its currency collapse, put capital controls in place—and now it's doing better than those countries that did austerity! In reality, Iceland let its banks fail for foreigners, wrote down household debt only after their laws had made it worse, had no choice but to watch the krona plummet, but, at the same time, tried to keep it from plunging too far by limiting how much money people could take out of the country . Oh, and it did more austerity than any country not named Greece. The truth is a more complicated place.
The lesson is that in a crisis—don't forget those three words—you can get a lot of things wrong and still be okay as long as you default and devalue. You can do a lot of austerity and make life impossible for borrowers and prevent people from investing in your country for years longer than you probably should have. You just have to get the big question right—what currency should I use?—and you'll have a decent enough recovery. The right monetary policy, in other words, can cover up a lot of mistakes."