By Aubyn Hill, Financial Gleaner Columnist
Last week, Greece joined Spain as the other country in the euro area with national unemployment over 25 per cent.
Youth unemployment is in the vicinity of 50 per cent. With Portugal and Iceland joining Greece and Spain as euro area bailout recipients, they form the economic mendicants known as the PIGS.
Greece's debt-to-GDP ratio of 130 per cent has caused many to compare Jamaica with this very 'poor man of Europe'.
The comparison is misleading and could lead Jamaicans to believe we are better off than we really are.
Greece has membership in the Eurozone and Jamaica does not. Greece's rich German Eurozone colleague has been giving it very substantial economic support and requiring equally substantial and painful economic changes. Jamaica has no such benefactor.
Greeks like German money but not the bitter economic medicine that it prescribes. Jamaicans may have some sentiments as the Greeks. We may want IMF or other lenders' cash but despise and vilify them for the perceived "bitter medicine", which will accompany any new cash to us.
Greece has the European Stability Mechanism (ESM), which last week was capitalised at US$650 billion, and Jamaica has no such institution to turn to.
I contend that Jamaica is more like Iceland than Greece.
Hold on tight, because your economic stomach is going to churn and retch.
In about a two-week period in late September and early October of 2008, Iceland's three largest banks by assets - Kaupthing, Landsbanki and Glitnir - collapsed and plunged the Icelandic economy into its biggest crisis.
Until September 2008, Iceland was one of the richest countries in the world in terms of per capita GDP. The 320,000 Icelanders watch the default of their three main banks US$85-billion debt erase 10 per cent of Iceland's GDP in a very short time span, unemployment increased sevenfold, and their currency, the krona, fell precipitously by over 50 per cent in the second week of October.
Icelandic banks were allowed to go bankrupt, the government spent 20 per cent of its GDP, according to the IMF, to protect domestic lenders, but the vast majority of the burden of the collapse was borne by foreign bondholders and creditors.
Iceland took some very hard decisions quickly.
CURRENCY PEG FAILURE
There has been a lot of talk in recent times about pegging the Jamaican dollar to the US currency. Here we can learn from Iceland as well. In the midst of the economic crisis, the Central Bank of Iceland tried to peg the currency to the euro.
The peg was instituted on October 6, 2008 and abandoned two days later.
Clearly, like Iceland then, we have relatively high and increasing inflation, a weak currency and an unbalanced current account situation - all of which will erode any peg we put in place.
We are in a fool's paradise if we believe a peg will solve these trenchant economic issues.
We have to produce more, cut the costs of Government, grow the economy to produce more revenues for the GOJ and manage our national affairs much better than we have done.
Jamaica, unlike Greece, and like Iceland, has very little or no choice. We have no ESM with US$650 billion to support us; no Germany in our camp with rich taxpayers to help - the same position Iceland found itself in 2008.
Iceland was not part of the Eurozone and so its independent currency had to be devalued when its banks collapsed, its inflation grew, and its increased sovereign debt had to be addressed by a default.
TOUGH ICELANDIC EXAMPLE
A strong argument can be made that if Greece was not in the Eurozone and still had the drachma as its currency, the drachma would have suffered a very deep devaluation by now.
Its bondholders would have suffered severe defaults and at least some of its banks may have had to be nationalised or closed.
Eurozone support has helped Greece to put off the day of reckoning. In the process, the Eurozone countries have held 21 summits and are no closer to the solution they seek.
The results from Iceland's swift (relatively) and tough economic decisions have been startlingly equally swift and positive.
In February this year, Iceland's debt was upgraded from "junk" to investment grade by Fitch rating agency.
In August, Iceland agreed to a three-year IMF-supported restructuring programme, including loans of US$10 billion.
Last year, Iceland's economy grew by 2.5 per cent and is expected to grow by that same rate this year.
Iceland is now the poster child for the IMF as a model of economic crisis management. Needless to say, Greece, or any other of the PIGS, is not.
Despite a 30 per cent fall in the average Icelandic household's purchasing power since 2008, the country has used the devaluation of its currency and two main products to rebuild its economy.
Its recovery has been led by tourism and fishing.
These are not new or high-tech industries but age-old economic drivers - and Jamaica has a long and strong record with one. Our energy equation provides a second opportunity and agriculture a third.
Indeed, our devaluing currency should force us to have our tourism industry buy more local agricultural products from one of the few economic sectors with consistent growth.
Similarly, our US$2-billion energy bill will become more burdensome with our devaluing currency. This should push us to reduce our duty on renewable-energy products, and especially photovoltaic cells, which is used to produce renewable electricity.
Jamaica is far away from being a poster child like Iceland, but we can learn a few things from that country's experience about making tough economic decisions, and then turning that into our economic growth and social advantage.
Aubyn Hill is the CEO of Corporate Strategies Limited and was an international banker for more than 25 firstname.lastname@example.org