ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Iceland's answer to the Recession. The Nordic Country's experience and response to the economic downturn.

Updated on March 24, 2015
Flag of Iceland
Flag of Iceland | Source

Little Iceland

The country that lies on the edge of Europe adjacent to Greenland and the Arctic is one of five countries with a Nordic heritage. The weather is harsh and the land is hardly lush with vegetation. Volcanic activity dominates the landscape and its 300,000 inhabitants reside in relatively small urban areas near the coast. The economy is very much dependant on fishing, energy resources and mineral extraction. Iceland's most potent resource is the geothermal energy that's stored beneath its rocky terrain and the energy released is plentiful due to the abundant sources of heat provided by the volcanic activity below the surface. Almost all Icelandic citizens have access to this cheap, clean and sustainable source of fuel and despite the inhospitable nature of the island, Iceland is constantly regarded by numerous measures as one of the happiest and most developed countries in the world, that is despite the major calamities that befell the country in very recent years.

3 Former Giants

The logos of Glitnir, Kaupthing and Landsbankiin. The former three largest privately owned banks in Iceland.
The logos of Glitnir, Kaupthing and Landsbankiin. The former three largest privately owned banks in Iceland. | Source

Economic Boom

Since the 1970s, Iceland's economy has diversified to include sectors such as tourism, manufacturing and engineering, and banking and finance. This has helped make the country and its city size population into one of the most prosperous in the world but it was the banking sector that was the primary instigator of the inflated bubble. The banks were deregulated in 2001 under the authority of the long term prime minister Davio Oddsson and the coalition government which he headed. The abundance of cheap credit coincided with huge corporate tax cuts, making Iceland function in a similar manner to Switzerland. Large investments firms such as the Baugur Group and the Icelandic banks had begun infiltrating into other countries financial services industries and consequently, the immediate results were phenomenal as foreign direct investment flooded into the country and GDP increased by almost 250% in the space of only six years. The value of the Icelandic Stock Exchange saw a nine fold increase in as many years.

Iceland's Stock Exchange

The value of Icelandic stocks during the previous decade on the ICEX
The value of Icelandic stocks during the previous decade on the ICEX | Source

...and bust

A country such as Iceland, with a relatively small population and a minute place in the global economic system was bound to suffer extensively due to the artificial nature of the economic expansion that was occurring. A huge debt can be sustained if the holder is asset rich and can secure the amount owed with said assets, for example; Japan. Problems in the money supply started to unravel when the Icelandic currency, the Kronur started to rapidly depreciate against the Euro, reaching a low point in October 2008. At the same time, the banks were in jeopardy, having overstretched their investments in countries where turmoil in the financial services was also taking hold. The bulk of the Icelandic bank's overseas investments were being conducted with the United Kingdom and The Netherlands, who were both facing financial difficulties at the time. A lack of regulations in the industry worldwide lead to falsified levels of liquidity and solvency and Iceland's banks had inflated their capacity to approximately 10x the level of GDP, according the the IMF whom they eventually sought a bailout from.



2008 Reykjavik Protests

Protesters outside Parliament in Autumn 2008
Protesters outside Parliament in Autumn 2008 | Source

A remarkably different approach

The term 'IMF bailout' carries numerous negative connotations associated with severe austerity, political upheaval and restrictive economic practices. Iceland's the country that suffered the most in proportion to its size is also the one that let its banking infrastructure collapse. The IMF loan of $2.1 billion came in conjunction with loans from Iceland's neighbouring Nordic countries in Scandinavia but the rebirth would be directed by heavy government intervention and and with participation from the Icelandic electorate themselves, who helped in implementing constructional reforms in the following years. The three hundred thousand strong, highly urbanised population also came out in protest in 2008 and 2009, demanding that the financiers and the politicians face eviction from office or prosecution for their white collar crimes.

Even before an election was held in Spring 2009, the ruling coalition party reacted quickly and in accordance with people's will. The three failed banks had been liquidated and their remains had been nationalised and recapitalised by the government, the currency was significantly devalued both as a consequence of the crisis and while the currency was reconstituted following suspension from the foreign exchange markets. Approximately 20 individuals bearing great responsibility for the financial crash were eventually arrested and put on trail and the government willingly called for an election which saw them defeated and replaced by the social democrats.


Jóhanna Sigurðardóttir

Jóhanna Sigurðardóttir; Iceland's Prime Minister from 2009-2013. The first openly gay head of government in the world.
Jóhanna Sigurðardóttir; Iceland's Prime Minister from 2009-2013. The first openly gay head of government in the world. | Source

Recent Developments

Although billed as one of the more successful responses to the great recession, Iceland has not exactly left the dramatic events of the past several years behind. On the positive side, the IMF program ended in 2011, the economic data reveals steady and consistent growth of approximately 2.5% per annum and the country's credit rating has improved according to major rating agencies such as Fitch, Moody's and Standard & Poor's. Its manufacturing and tourism industries are also consistently expanding. Most significantly, the population of Iceland has been very directly involved in the redevelopment of their country, despite the critical situation they found themselves in. Being a country with a relatively small population and a relatively small set of political and financial infrastructures, the elements of direct democracy were very poignant and effective in Iceland.

The negative impacts have been felt particularly in the job market. Iceland's population has increasingly sought employment opportunities abroad and this brain drain has been noted in population statistics. Repossessions of homes and other expensive assets has been prevalent and there have been difficulties with regards to individual credit scores and property ownership in general has become a greater challenge, mostly due to tougher banking regulations. Taxes and have also increased as have the prices of goods and services. Iceland's economic program of the last 15 years has demonstrated the volatility of 'Casino Economics', or an unregulated market populated with speculation, derivatives and a gambling ethos which pits corporations against one another in a frenzied, dogmatic free for all. Iceland's current model is a highly regulated mixed economy, similar to that of Franklin Roosevelt's New Deal of the 1930s and is a more sustainable long-term economic model

A Casino Economy

The Icelandic Casino Experiment Has All But Ended
The Icelandic Casino Experiment Has All But Ended | Source

Your opinion

Has Iceland's response to the crash been the most robust in Europe?

See results

Comments

    0 of 8192 characters used
    Post Comment

    • Virginia Allain profile image

      Virginia Allain 

      8 months ago from Central Florida

      The U.S. could learn a lot from Iceland. Bankers never got punished properly for their misdeeds here and they are still abusing the system.

    • Daniel Bassilios profile imageAUTHOR

      Daniel Bassilios 

      3 years ago from Newcastle Upon Tyne

      Its got the population of a city and everything is very small scale in comparison to other states. I think it demonstrates the strengths of a proactive democratic representation more than anything.

    • lions44 profile image

      CJ Kelly 

      3 years ago from Auburn, WA

      Great look at the Icelandic economy. Although not a fan of nationalizing anything, particularly banks, I think in a small country like this it can work. And I still like the fact they did not adopt the Euro. That's one of the reasons they've come back somewhat. The job market will always be a problem, but at least they're stable. Voted up and shared.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)