Travel Reference
In-Depth Information
THE COD WARS
The 1950s also saw Iceland facing a rather different defence matter: that of preserving its
fish
stocks
- and hence most of its export earnings - in the face of foreign competition. Following
skirmishes dating right back to the English Century, Iceland's
territorial waters
- the area
from which it could exclude foreign vessels - had been set as extending three nautical miles
from land in 1896. As commercial fishing picked up again after World War II, fish stocks through
the Atlantic declined, and most countries increased their territorial limits.
In 1958, Iceland declared a
twelve-mile limit
which Britain protested, sending in naval boats
to protect its trawlers fishing in these new Icelandic waters in the first act of the
Cod Wars
.
These flared on and off for the next thirty years, with Iceland continuing to expand its claims as
fish stocks continued to dwindle, and employing its coastguard to cut the cables of any foreign
trawlers that were caught poaching. Things came to a head in 1975, when Iceland declared a
two-hundred-mile limit around its shores, at which point Britain broke off diplomatic relations
and ordered its Navy to ram Icelandic coastguard boats, which happened on several occasions.
The situation was only resolved in 1985, when international laws justified Iceland's position by
granting the two-hundred-mile limit to all countries involved in the dispute.
On the downside,
fishing
as the single main source of export earnings created a very
sensitive economy while a reliance on
imports
led to high prices, with many people
needing more than one job in order to make ends meet. The runaway inflation of the
1970s (in part caused by the 1973 eruption of the volcano on Heimaey, which
disrupted the season's fishing) was capped, though at the cost of rising
unemployment
figures. After decades of stability and prosperity since then, however, disaster struck in
October 2008 with the
collapse of the banking system
.
Iceland today
Since the late 1990s, Iceland had sought to diversify its heavily fishing-oriented
economy by investing in
banking
, which initially created incredibly high profits:
suddenly a few mega-wealthy Icelanders were buying up everything from English
soccer clubs to European supermarkets; and foreign investors, tempted by the
fifteen
percent
interest rates that Icelandic banks were using to counter rising inflation, began
pouring in money. But this only accelerated inflation and hikes in interest rates,
causing the exchange rate to lose touch with economic reality while giving the
Icelanders an illusion of wealth.
Meanwhile, the Icelandic banks continued to buy up foreign assets, until these were
valued at ten times Iceland's actual economy. This meant the Icelandic government
couldn't guarantee the banks and, when the bubble burst in 2008, the consequences for
the whole country were
disastrous
. The banks were nationalized, unemployment and
inflation soared and the exchange rate collapsed. Living standards fell, too, leaving one
in five households bankrupt.
A series of public protests in the wake of the collapse brought about the fall of
Geir
Haarde
's right-wing government in January 2009, which was replaced by a new
left-wing administration under
Jóhanna Sigurðardóttir
. In a bid to restore credibility
and stability to the economy, Sigurðardóttir lost no time in applying to join the
1974
1975
1975
1985
Ringroad completed
around the country
Iceland declares a
200-mile territorial
limit around its shores
Britain breaks off
diplomatic relations and
the Cod Wars intensify
The Cod Wars are resolved,
and the 200-mile limit
agreed by international law
