keynes, ohlin and ET.

Second year economics honours class, room 308, jmc- 38 girls and one ET (if you've met her you'll know ET, if you haven't, its high time you do).
Topic of discussion- keynes -ohlin post war debate about whether Germany can repay the terms laid out by the very demanding Dawes committee or not. Keynes was to say the least pessimistic about it, and ohlin was rather optimistic. Fulcrum of the debate- the very beaten around transfer problem.
So why am I suddenly reminiscing about ET and this particular class.
Because of Iceland. wait a minute, I'll get to it.
So Iceland got into deep ahem... residual body waste... when the economic recession was headlining last year. Its Northern Rock banking model was just a little to risky and the government was just a little too tight on cash. So in come the saviours- Britain and the Netherlands (those meddlesome Britons) and they strike a deal. they bail out Iceland's bank (and save its economy from kinda drowning), an when sunshine returns to the world, Iceland pays back. Now when you're in the afore mentioned residual waste, you make 'temporary' promises, and so did Iceland. the funny thing though is that Britain and the Dutch actually believed it completely. background research or lack of it?
so now, they say, sunshine is back and want the little island up north to cough up the cash. But, uh... ahem... ummm... they don't want to- simply because they cant afford to.
now Keynes back in the day said that Germany cant afford to pay unless the receivers of the money spend that money on buying German goodies so that Germany has a trade surplus. and fro that Germany would have to produce a whole lot more, and sell it a whole lot cheaper for the allied countries to buy from it.
Because I'm generally biased towards keynes (who I think is awesome), I'm presenting his case and simply saying that ohlin was I think wrong. (If you're interested in ohlin's case- read up on it).
But Keynes's case is sooo apt fro our iceland case today (and the genius lives on. amen). it is unrealistic of the Nordic countries to expect iceland to pay up money that will set back its economy to prehistoric levels. it makes sense for Iceland to pay back the money if its largest export destination - the EU (or the recipients of that money) can pump it back into its 'frozen' (i crack myself up sometimes) economy by buying more Icelandic stuff. but wait a minute- Iceland only has this much productive capacity and only so many products with a comparative advantage- obviously they cant pay back that money. Clearly Gordon Brown should have thought about all this a little more. but you know what they say- hindsight 20-20.
and in hindsight- thank you ET.