Irish GDP will shrink faster than Iceland's, says ex-PM
THE Irish economy will shrink more than Iceland's economy this year, former Icelandic Prime Minister Geir Haarde said in Dublin yesterday.
Iceland's economy will contract 10pc, Mr Haarde said. Brian Lenihan forecast in April that Ireland's gross domestic product will contract 10.75pc. The EU expects our economy to shrink 12pc.
Mr Haarde said he did not believe membership of the EU would have saved Iceland from the "financial hurricane" which triggered the country's financial meltdown and the collapse of the country's three banks, noting EU membership had not saved Latvia's economy from shrinking an expected 18pc this year.
Mr Haarde warned proposed EU reforms of the banking sector don't go far enough and won't prevent further crises. "The EU will have to do a lot of work on financial regulation," Mr Haarde said in a speech at the Institute of European Affairs.
The present proposals being debated today and yesterday in Brussels are not enough to prevent a new banking collapse, he added.
Mr Haarde, who was prime minister when Iceland's economy collapsed and who was subsequently ousted from power, said the EU needs to create some sort of pan-European system to guarantee banks which have operations in several countries. Banks should also be forced to open subsidiaries when they operate outside their home country he said. This transfers risk to the host country rather than the home country, he added.
The size of Iceland's banks was the main reason for their collapse,he said. They were too big to be saved by Iceland's government but not big enough to weather the storm, he added. Iceland has a population of just 304,000. Iceland moved quickly to split up the failed banks, ensuring that ordinary citizens could still access their accounts and use credit cards.
Unemployment has jumped to 9pc from 1pc while inflation is running at 11pc, he said.