Iceland's revenge

Iceland has its revenge according to the FT. The tiny Scandinavian country suffered vigorously when the global financial crisis erupted in autumn 2008. All its banks had to be nationalised and the English and Dutch government demanded financial compensation after their citizens lost savings allocated in Icelandic banks that were promising higher interest rates than domestic ones (once again a too-good-to-be-true deal, which the depositors willingly accepted without asking questions).

Now Iceland strikes back and throws large parts of Western and Central Europe into chaos as airspace had to be closed and thousands of travelers are grounded because of the volcanic ash cloud. Airlines threaten with losses of USD200 billion per day, which might potentially weaken the nascent recovery governments' just managed to generate with extensive spending packages.

But losses due to the monster cloud might far exceed these levels as a friend of mine - an economist himself - suggested recently. Time is money, as we all know. People are not getting to work, deliveries are not reaching destinations on time and business deals are not signed. According to some interviews the timing couldn't be worst. Many were surprised while on Easter holidays and are now forced to extend their stay. Schools are expecting significant amounts of pupils and teachers not to be back when they reopen their doors on Monday as people are stuck somewhere abroad. Oxford University postponed exams schedule for next week as lecturers and students might not be back in time.

But are these estimates and cries of losses that will plunge us back into recession not exaggerated? Yes, they are since someone's loss is someone else's gain and as an economy we might get out of it without a single scar. Alternative transport providers experience a heyday. The Eurostar train servicing the route Paris-London is fully booked for days. Car rental places are likely to profit as well. Hotels are over-run by guests as they wouldn't be normally just after the Easter holidays. Obviously, it is hard to estimate whether losses and gains balance each other out (although I would think gains might be even bigger than losses given that clever entrepreneurs offer train tickets at high prices). Nonetheless, we are not doomed! The monster cloud will not swallow the recovery.

It is a pain, yes, and believe me I feel it as much as you since I'm expecting my parents on a plane from Europe this Wednesday. For an economist, there is only one logical reason to cry over millions and millions of losses like the airlines are doing at the moment: to put pressure on authorities to re-open the airspace! Hence, the more we cry the quicker it will be over.