Travel Reference
In-Depth Information
ICELAND'S ECONOMIC MELTDOWN
Everything was looking so rosy. Between 2003 and early 2008, Iceland was full of confid-
ence and riding high. But much of the country's wealth was built over a black hole of debt
- its banks' liabilities were more than 10 times the country's annual GDP. The ripples of
the worldwide financial crisis became a tidal wave by the time they reached Icelandic
shores, washing away the country's entire economy.
By October 2008 the Icelandic stock market had crashed; the króna plummeted, losing
almost half its value overnight; all three national banks went into receivership; and the
country teetered on the brink of bankruptcy.
Help came for Iceland in November 2008 with a US$2.1 billion International Monetary
Fund (IMF) loan and a US$3 billion bailout from Scandinavian neighbours. Nevertheless,
spiralling inflation, wage cuts and redundancies meant that Icelanders' incomes fell by a
quarter in real terms. Protestors rioted in Reykjavík, furious with a government they felt
had betrayed them by not downsizing the bloated banking system.
The crash was a terrible blow to Icelanders - its legacy included high household debt,
high inflation, record unemployment (peaking at 9.4% in early 2009, but sitting around
4% to 5% in 2014) and emigration for work (some 5000 Icelanders moved to Norway in
the four years following the crash).
But, incredibly, the economic situation has begun to right itself. Where other countries
in financial straits chose to bail out their financial institutions, the Icelandic government
refused to use taxpayers' money to prop up the failing banks. Instead, it made the
Icelandic social welfare system its priority, choosing to help those citizens who were
worst affected by the crash and let the private banks' creditors take the hit. Though bank
creditors (many of them hedge funds) are still trying to recoup their money, Iceland's ap-
proach has won praise from the International Monetary Fund and from numerous eco-
nomists.
This unique decision appears to be paying off - other nations are still floundering in the
financial mire and dealing with record unemployment rates, Iceland appears to be on the
rise again.
