THE FINANCE minister of Iceland says his government was correct in its approach on its bank crisis in resisting the privatisation of gains and the socialising of losses.

Steingrímur Sigfússon said last night that public funds should be allocated towards the welfare of citizens and not towards banks.

The biggest difference between Ireland and Iceland, Mr Sigfússon said, was the approach to the banks, with Iceland’s taxpayers refusing to foot the bill for the multi-billion losses of Iceland’s banks. His own government backed the most recent proposals agreed with the Dutch and UK authorities but it was rejected in a recent referendum, the second such rejection by plebiscite in recent years.

He would not criticise any decision of the Irish Government but emphasised the importance of a government being able to design its own policies and means of tackling the crisis, even after an international organisation such as the IMF had intervened.

Mr Sigfússon delivered the Henry Grattan lecture last night at TCD at the invitation of the universitys policy institute.

In an interview with The Irish Times, the finance minister, a member of the Green Left Party which forms part of a left-wing coalition, said the outlook was very bleak when the government came to power in February 2009.

“This was a society that had suffered enormously. We lost 85 per cent of the banking sector in a week. There was a very sharp devaluation of the currency. There were mass demonstrations though they were peaceful. Our society was in turmoil. We had a huge task to rebuilt the economy and the finance sector, to deal with a huge debt that was loaded on the state.”

He said many of the things experienced by Ireland had been gone through by Iceland but a little earlier. The government had to set up a new banking sector and to achieve that, it needed to enter into an IMF programme and also to receive foreign currency loans from the Nordic countries.

Capital controls were introduced, unemployment rose sharply and the Government had to embark on a series of very tough budgets which entailed cuts in expenditure, higher taxes (particularly weighted towards the highest earners) and other measures.

Mr Sigfússon said some two years later the policies were beginning to bear fruit. “The deficit was 13 per cent in 2008 and 10 per cent in 2009. It should be down to 3 per cent this year. This is a major achievement, but this of course has not come without a cost. It has been politically and economically difficult. The last budget was very difficult to get through.”

The bank debts, guaranteed by Iceland, were so massive in comparison with the size of its economy that the government set up new banks. They have had a very high 16 per cent capital ratio. He said the new banking arrangement had encountered challenges but progress was being made.

Iceland hoped to “graduate” from the IMF standby programme in the autumn.

On Ireland’s decision not to impose burden-sharing, he said there was not a one-size-fits-all solution, but he stressed the importance of a country resisting the decision being taken out of its own hands.

“I would rather emphasise that there is no easy way out; there is no good approach. You can only select those processes that are best for you. It’s important that each country relies on co-operation with international institutions like the IMF, but it should design its own policies and should have the right to do so.”