There have been claims that Iceland allowed its banking system to collapse, with what now seem reasonable results, and that others should consider doing the same. The fact is that Iceland kept the domestic part of its banking system running throughout; otherwise, the consequences would have been dire. Some have claimed that the banks were nationalised. They were not. The old banks are private companies. They are in winding-up proceedings governed by law; they are not under the control of the Government. The Government has a majority stake in only one of the new banks. Others have claimed that Iceland defaulted and got away with it. The opposite is true. The credit of the sovereign was preserved, and all debt obligations have been paid on time. Moreover, the investment-grade credit ratings from Moody’s and S&P were preserved throughout the crisis. This is why the sovereign has been able to tap international capital markets twice so far since the crisis struck. So the bottom line is that a sovereign default was avoided in spite of an almost unprecedented financial collapse and the worst economic recession since the interwar years. A key to that result was the ring-fencing of the sovereign from the collapse of the private banks. All debt service payments on sovereign debt, in both domestic and foreign currencies, have been made in full and on time.
With few exceptions, all the advanced economies were already in a net debt position and many are now facing funding problems related to an aging population. If the global economy is to recover from the crisis, government debt must be stabilised fairly soon in order to prevent a string of crises in state finances. Norway is in a unique position due to government petroleum revenues. Monetary and fiscal policy have stimulated domestic demand and output. Growth in mainland GDP was higher in the second quarter than projected in the June Monetary Policy Report. Household consumption seems to be picking up again. Petroleum industry activity has also had a stabilising effect on the Norwegian economy. There are plans to develop a number of oil fields on the Norwegian continental shelf in the years ahead, but it is likely that these investments will require an oil price of more than USD 60–70 per barrel to be profitable. BIS Review 115/2009  3  The events of September 2009 spread rapidly to the firms in Norges Bank’s regional network. In August 2009, manufacturing enterprises reported that growth would hold up. In November, the turnaround was described as a “heart attack”. Norges Bank established its regional network in 2002. Regular interviews provide information about enterprises’ assessment of the economic outlook before other official statistics are available. This information is therefore an important part of the decision-making basis in the formulation of monetary policy. Statistics Norway’s quarterly national accounts are available about 50 days after the end of the quarter.