Comprehensive capital controls were an important element in the programme, but the rationale behind them was to help stabilise the exchange rate after the currency had fallen more than 50% in 2008, and in addition, the stock of relatively liquid foreign-owned krónur – a legacy of carry trade and other capital inflows – amounted to around 40% of GDP and would have resulted in a further meltdown of the currency if it had begun to flow out through Iceland’s shallow FX market. After the split of the failed banks had been executed towards the end of 2010, it gradually became clear that it had not been a pure domestic/international split. The estates of the old banks held significant domestic assets, while only a small part of their claims were domestic. This posed a significant balance of payments problem for Iceland and, if left unmitigated at the point of resolution and distribution to creditors, could potentially have had a severely detrimental effect on the exchange rate and financial stability. The estates of the old banks were therefore brought under the capital controls in March 2012. In late 2008, the combination of capital controls and exchange rate stability was in several ways a key to stabilising the economy. First, a very significant part of private sector debt was either directly linked to the exchange rate or indirectly linked to it through price indexation.
Peter Praet: Interview in Knack Interview with Mr Peter Praet, Member of the Executive Board of the European Central Bank, in Knack, conducted by Mr Ewald Pironet and published on 6 January 2016. *  *  *  For over a year now, the European Central Bank (ECB) has been printing heaps of money, pumping it into the economy and pushing interest rates down to almost 0%. When may this policy be deemed a success? You may label that ECB policy a success if inflation, the rise in the cost of living, stays below, but close to, 2% over the medium term. That is our mandate. I admit that our policy has not yet been successful enough: inflation rates in Europe have been at the very low level of almost 0% for quite some time now. That is why we are continuing to take the necessary measures to drive inflation up to 2% over the medium term. However, the point at which we think we will reach 2% is constantly postponed, because all kinds of things are happening that are dampening inflation, such as the decline in oil prices or lower economic performances in the emerging countries. We have decided to maintain our policy until March 2017. But we need to be careful not to jeopardise the ECB’s credibility by shifting that horizon. It is up to the ECB to keep inflation at just below 2%, but it is failing to do so.