Comparing Iceland to Ireland, he tells us, “But while Icelandic males used foreign money to conquer foreign places–trophy companies in Britain, chunks of Scandinavia–the Irish male used foreign money to conquer Ireland.” Meanwhile, the Greek government was just spending, hiring, paying salaries and borrowing.
His Iceland stories include a fisherman who says, “I think it is easier to take someone in the fishing industry and teach him about currency trading than to take someone from the banking industry and teach them how to fish.”
For Ireland Lewis asks why, “For the first time in history, people and money longed to get into Ireland rather than out of it.”
And for Greece, the debt story took him to a monastery.
Summarizing it all in a Planet Money podcast, Lewis says that in Greece, “the country sunk the banks” while in Iceland and Ireland, the banks “sunk” the country.
The next stop for his financial disaster journey is California.
The Economic Lesson
Sovereign debt is the money owed or guaranteed by a country to investors who purchase its bonds. It is just another name for government debt.
Alexander Hamilton believed that sovereign debt, as long as it was manageable, was beneficial. Reading about his plan to fund and refinance the United States’ revolutionary war debt reveals his commitment to establishing our good credit. His approach was varied, including issuing new bonds to pay for those outstanding and servicing the interest promptly on the foreign debt. It worked. Even those in Holland, then the financial capital of the world, displayed confidence in our public credit. Adhering to the Hamiltonian philosophy, the United States has never defaulted on its debt.
For Portugal, Ireland, Italy, and Greece, investor worries about default lead to the creation of a euro zone emergency fund.