REYKJAVIK, Iceland - For a country that four years ago plunged into a financial abyss so deep it all but shut down overnight, Iceland seems to be doing surprisingly well.

It has repaid, early, many of the international loans that kept it afloat. Unemployment is hovering around 6 percent, and falling. And while much of Europe is struggling to pull itself out of the recessionary swamp, Iceland's economy is expected to grow by 2.8 percent this year.

"Everything has turned around," said Adalheidur Hedinsdottir, who owns and runs the coffee chain Kaffitar, the Starbucks of Iceland, and has plans to open a new cafe and start a bakery business. "When we told the bank we wanted to make a new company, they said, 'Do you want to borrow money?' " she went on. "We haven't been hearing that for a while."

Analysts attribute the surprising turn of events to a combination of fortuitous decisions and good luck, and caution that the lessons of Iceland's turnaround are not readily applicable to the larger and more complex economies of Europe.

But during the crisis, the country did many things different from its European counterparts. It let its three largest banks fail, instead of bailing them out. It ensured that domestic depositors got their money back and gave debt relief to struggling homeowners and to businesses facing bankruptcy.

"Taking down a company with positive cash flow but negative equity would in the given circumstances have a domino effect, causing otherwise sound companies to collapse," said Thorolfur Matthiasson, an economics professor at the University of Iceland. "Forgiving debt under those circumstances can be profitable for the financial institutions and help the economy and reduce unemployment as well."

Iceland also had some advantages when it entered the crisis: relatively few government debts, a strong social safety net and a fluctuating currency whose rapid devaluation in 2008 caused pain for consumers but helped buoy the all-important export market. Government officials, who at the height of the crisis were reduced to begging for help from places like the Faroe Islands, are now cautiously bullish.

David Fuller's view This article, which I think should be read in its entirety by anyone interested in the subject, gives some indication of what could be achieved by Ireland, or Southern European countries should their populations eventually decide to leave the Eurozone, presumably using Capital Economics' blueprint for procedure (see Friday's posting).

There are differences between all these countries, inevitably, but I think analysts too easily accept the conclusion: "that the lessons of Iceland's turnaround are not readily applicable to the larger and more complex economies of Europe." We hear the same dismissal regarding Singapore's economic success and why other countries are unable to emulate it. Surely, the main difference in performance is one of governance. Unfortunately, we live in a world diminished by many examples of corrupt or inept governance. However, there are positive examples which can be followed and the basics of sound governance have never been an unfathomable mystery.

Inevitably, Iceland's or any other country's path to restoring a broken economy is not without plenty of hardship, as also pointed out in the article above. The same would apply to so-called peripheral countries which may elect to leave the Eurozone, whether sooner or later. These include a significant devaluation, necessary to restore economic competitiveness, soaring inflation as a medium-term consequence and almost certainly the need for temporary capital controls, as we see in Iceland. However, once the necessary devaluation had been achieved, there would be nothing to prevent these countries from pegging their currencies to the euro, which would be desirable as most of their trade would be within the Eurozone.