December 10, 2012

Iceland's Recent Economic History: As Fascinating As Its Scenery

I started to write a report on some of the interesting facts I've learned about this intriguing country: its climate, history, the Northern Lights.... Then I came to "Iceland's Economy." I knew its boom and bust during 2008's global recession had been bigger than most. As my research continued, I thought, "Wow! This story shouldn't be buried in the middle of a general report on Iceland. It deserves featured billing."

See what you think.

The 2008 Meltdown
In 2007, the U.N. named Iceland the best country in the world to live in, based on life expectancy, education levels, medical care, income, and other criteria.

October 2008 saw the global recession take hold, stranding Iceland in an ocean of debt. Within three weeks, major banks were declared insolvent, the krona plummeted, and the interest rates for car and home loans doubled. By early 2009, it was clear that almost 90 percent of Iceland's businesses, including some of the largest, should have declared bankruptcy. The central bank estimated that this assessment was true for about 30 percent of households, too.

Unlike what has happened in the U.S. and Europe, the Icelandic government, financial sector, and federation of businesses agreed on a comprehensive debt-relief program for households and small to medium-sized firms. The program has seen many legal challenges, some still unresolved, but so far 12 percent of Iceland's household debt has been written off.

In terms of total debt collection, this approach has left the financial sector with as good a result as possible, avoiding the pain of sending most firms and many families into bankruptcy, unemployment and dispossession.

Thanks to this tempered approach to debt write-down, Iceland's economy is now growing faster than most in Europe, and unemployment is less that 5 percent, after hitting 9.3 in early 2010.

Street Protests Bring in the World's First Openly Gay Prime Minister
Icelanders took to the streets after the 2008 economic crash, and in 2009 voted into office a new coalition led by Social Democrat Prime Minister Jóhanna Sigurðardóttir. As a result, Iceland has the world's first openly gay prime minister. In July 2010, when laws were passed allowing gay couples to marry, she tied the knot with her long-time partner.

The new government is now investigating most of the main protagonists of the banking crisis. Parliament is still deciding whether to press ahead with an indictment brought in September 2009 of the former prime minister for his role in the crisis.

Iceland's special prosecutor has said the country may indict as many as 90 people, while more than 200 -- including the former chief executives at the three biggest banks -- face criminal charges.

The former CEO of what once was Iceland's second largest bank was indicted last December for making illegal loans and is now awaiting trial. The former head of another major bank has undergone stints of solitary confinement as his criminal investigation continues.

Iceland's response stands in stark contrast to our own. Here, no senior bank executives have even faced criminal prosecution in the sub-prime mortgage meltdown that crippled our economy.

For this political junkie, Iceland's handling of the 2008 recession is -- in its way -- as spectacularly beautiful as the sight of the Svínafellsjökull glacier that brought me to tears.

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