The credit of the sovereign was preserved, and all debt obligations have been paid in full and on time. On the whole, these measures were successful, which mitigated the effect of the banks’ failure on the economy. The domestic payment system functioned more or less seamlessly throughout, and there was continuous access to deposits and basic banking services in Iceland. The economic programme with the IMF was initiated in November 2008. It had three key goals: stabilisation of the exchange rate, fiscal sustainability, and reconstruction of the financial sector. Financing amounted to USD 4.4 bn. with 1.4 bn. coming from the IMF and the rest from bilateral loans from the Nordic countries and Poland. Despite some initial delays due to the bilateral dispute on deposit guarantees, which I will not discuss here, the programme was very successful, and all three goals were reached. The programme ended in August 2011. The Nordic bilateral loans were prepaid in 2012–2015, and the IMF facility and the Polish loan were prepaid in autumn 2015. Comprehensive capital controls were an important element in the programme, but their rationale was to help to stabilise the exchange rate after the currency had fallen more than 50% in 2008, where foreign króna positions – a legacy of carry trade and capital inflows – amounted to around 40% of GDP, and where a large fiscal deficit that had to be financed in the domestic market had developed.
The consequences for the macroeconomic outlook are clear: if labour productivity and/or labour input fail to improve, the impending demographic development will lead to slower medium and long-term growth. It is thus all the more important that labour productivity increases. The growth in labour productivity depends primarily on workplace capital and product market success. It would be ill advised, however, to make oversimplified calculations. Neither technological progress nor capital investment are unaffected by demographic aging. While enthusiasm for embracing innovation may decrease with old age, greater experience can enrich human capital. On the one hand, a tighter labour market can be counteracted by shoring up investment. On the other hand, both the savings and the investment rate can decline. If foreign locations become more attractive, the latter is a particularly likely scenario. It is not clear how the overall effect of these interactions would impact overall on growth. These perspectives call for measures that boost both labour productivity and labour input. In a market economy, employers, employees and the self-employed have a number of instruments and options at their disposal to increase labour productivity and labour input. However, there is also room for improvement with regard to the economic conditions within which businesses operate. First, the capacity for innovation in Switzerland should not be allowed to decline. Therefore, policies fostering education and research are called for. Second, Switzerland ought to continue to attract more investment. In other words, domestic investment should become more attractive.