Lessons For Europe: Why Iceland Bounced Back So Fast

The 2008 economic crisis struck particularly hard in Iceland, where banks went bust and the currency value evaporated. But a hard line both at home and abroad has helped turn things around. But can the model be copied?

Things are heating up again in Iceland (moohaha)
Things are heating up again in Iceland (moohaha)
Henryk M. Broder

REYKJAVIK - What kind of a crisis can you neither see nor smell, touch nor taste?

Here, in fact, the hotels are booked solid, cafes are full, the stores full of merchandise, although a visitor may be surprised that an Icelandic tomato costs twice as much as an imported Italian one. The new opera and concert venue called the Harpa in Reykjavik, which cost 170 million euros to build, is featuring Jethro Tull, with its iconic lead singer Ian Anderson performing "Thick As A Brick" in its entirety. The big 1,800-seat hall is completely sold out even with tickets costing between 50 and 60 euros each.

"You really don't notice anything," says Olafur Isleifsson, a professor at the Haskolinn i Reykjavik, the country's largest private university. It trains economists, computer scientists, engineers and jurists. Olafur, 57, earned his Bachelor degree in mathematics at the University of Iceland, and his Masters in economy at the London School of Economics, then worked for the International Monetary Fund in Washington, Iceland's Central Bank, and as advisor to Prime Minister Thorstein Palsson. Since 2003 he's been teaching economics and statistics at the Haskolinn.

"And do you know why you don't see anything?" Olafur makes a face like a poker player about to reveal his hand. He recalls Oct. 5, 2008, when then-Prime Minister Geir Haarde called a state of emergency and ended his speech to the nation with the words ‘May God bless Iceland". "It was as if an atomic bomb had exploded," he recalled. "But it turned out to be not an atomic bomb but a neutron bomb. And a neutron bomb doesn't destroy houses: it only destroys paper assets."

In early 2008, the total assets of the three largest Icelandic banks were ten times the country's gross national product. No government in the world would have been in a position to save these banks. Within days they were nationalized. How things could have come to that is something Icelanders are still asking themselves four years later.

"It became a chain reaction. Businesses couldn't get credit and went bust, unemployment rose to nearly 10%, and the Icelandic krone was devalued by 50%." Which among other things resulted in disaster for Icelanders who'd let their banks talk them into taking out cheap euro or dollar mortgages – loans that they could now no longer afford to service. Somebody who had borrowed 10 million kroner suddenly found themselves with a debt of 20 million kroner – often, sums that were greater than what their property was worth.

Foreigners take the hit

Olafur favored an "American solution." This meant that instead of spending a lifetime paying for a house or apartment that would never belong to you, "you cleared your stuff out, sent the key to the bank, and moved elsewhere." The solution didn't catch on, and the now nationalized banks ended up writing off part of what they were owed.

The ones who really took a beating were the 300,000 British and 120,000 Dutch who, attracted by high interest rates, deposited their savings in the country's largest bank, the Landsbanki. The program was known as "Icesave" and was anything but risk-free. The British ended up losing some five billion euros, and the Dutch 1.7 billion.

The Icelandic government said that it was willing to pay partial compensation to those who had lost money, and parliament approved a law – albeit by only a tiny majority – to that effect.

And then something happened that absolutely no one had expected. President Ólafur Ragnar Grímsson refused to sign the law into being. (He had actually already done this once before, against a new media law.) While the British and Dutch raged and threatened sanctions, Icelanders were delighted and called for a referendum – a first in the country's history.

And on March 6, 2010, 93% of voters rejected the compensation law. The government, anxious to preserve its credibility, put a modified version of the law before parliament which was approved by a large majority. Until 2046, it would have paid out on a yearly basis no more than 5% of state revenues. President Grimsson refused to sign that law too, and at a referendum on April 9, 2011, 57% of voters also rejected the law.

"It was a morally sound and economically sensible decision," says Olafur. "Investors who let themselves be seduced by high interest rates have to accept the higher risk involved." Icelanders also didn't see why they should be liable for bank speculation. After all, "when things were going well, the bankers didn't share their profits with us."

The idea that has established itself in Europe – that profits stay private but that losses have to made up by society at large – is something that doesn't sit with Icelanders, who set great store by individual responsibility. One can have success, but one can also fail – and responsibility for either should not be passed off onto others. In this regard, Icelanders could be seen as lagging behind the Europeans, or as way ahead of them.

"We're doing well," says Olafur: unemployment is on the decline, although at around 5% it's still a little higher than it was in 2008; for a year now the economy has been improving and economists are predicting growth of 2.5% in 2012. However, inflation – at around 6% - is worrisome. Nevertheless: "We're in the process of pulling ourselves out of the swamp."

The country's banks have stopped operations outside Iceland, and now only serve Icelanders. Turnovers at the fisheries are substantial and profits large. The construction industry, which came to a standstill in 2008, is gearing up again. And since the krone was devalued the country has become more attractive to tourists – not cheap, exactly, but not much more expensive than Italy or Austria. "We're back in reality," says Olafur.

Though it will still be several years before the consequences of the 2008 financial crisis are fully overcome, one thing is already clear: nobody in Iceland is talking about joining the EU or introducing the euro. They haven't forgotten the malicious and vindictive remarks they heard from Europeans during the crisis. But that doesn't mean they're holding a grudge. They know they depend on the European market. Who else is going to buy their fish, read their writers, and worship singer-songwriter Björk?

"We really sincerely wish Europeans well," Olafur says.

Read the original article in German.

Photo - moohaha

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Spencer Tunick Nude Installation in Israel

Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 Salam!*

Welcome to Monday, where the UK pays homage to slain MP David Amess, Myanmar frees thousands of prisoners, and Facebook gets ready to build its "metaverse." Please fasten your seatbelts: Worldcrunch also takes stock of the long-lasting effects — good and bad — the pandemic has had on the air travel industry.

[*Azeri - Azerbaijan]


Myanmar to free political prisoners: Myanmar's junta chief Min Aung Hlaing has announced the release of 5,636 prisoners who had been jailed for protesting the coup that ousted the civilian government in February 2021.

• Powerful Haiti gang behind the kidnapping of U.S. missionaries: The notorious 400 Mawozo gang is believed to be behind the kidnapping in Haiti of a group of Christian missionaries, including 16 U.S. citizens and one Canadian. The brazen kidnapping on Saturday comes as crime is spiking since the killing of President Jovenel Moise in July.

• UK to pay tribute to David Amess: British lawmakers will pay homage in parliament to colleague David Amess, who was stabbed to death Friday in what was described by the police as a "terrorist incident." Officers arrested a 25-year-old suspect whose father, Harbi Ali Kullane, worked as a media adviser to a former prime minister of Somalia.

• COVID update: Russia has registered more than 34,000 cases of new infections in the past 24 hours, a new record since the start of the pandemic. Meanwhile, police in the northeast Italian city of Trieste used water cannons to clear striking dockworkers protesting Italy's new requirements that all employees be vaccinated.

• At least 26 killed in floods in India: Torrential rain has triggered floods and landslides in India's southern coastal state of Kerala, killing at least 26 people.

• Facebook to hire 10,000 in EU to develop "metaverse": The U.S. social media giant plans to hire 10,000 workers in the European Union over the next five years to build a "metaverse," a virtual reality version of the internet that the company touts as the future.

Punishing parents for children's bad behavior: After limiting gaming hours for minors, China is now considering legislation to reprimand parents if their children exhibit "very bad behavior" or commit crimes.


Colombian daily El Espectador dedicates its front page to Alex Saab, "owner of the secrets" of Venezuelan President Nicolas Maduro. The Colombian businessman, wanted by U.S. authorities for allegedly laundering money on behalf of Venezuela's government, has been extradited from Cape Verde to the U.S. where he is scheduled to appear in court today.



China's economy registered its slowest pace in a year as the country faces a looming energy crisis with power shortages and increasing pressure on its property sector. Gross Domestic Product (GDP) for the period between July-September rose 4.9%, the weakest numbers since the third quarter of 2020 and significantly lower than forecasts. The world's second-largest economy faces a debt crisis linked to the China Evergrande Group debt crisis, while energy shortfalls have dropped factory output to its weakest since early 2020, when heavy COVID-19 curbs were in place.


7 ways the pandemic may change the airline industry for good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

⛽ Cleaner aviation fuel: With air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel. In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials

.🛃 Smoother check-in: The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

✈️ The billion-dollar question: Will we fly less? At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel, in particular, is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

➡️


"The crimes committed that night are unforgivable for the Republic."

— Emmanuel Macron became the first French president to commemorate the killing of as many as 200 Algerian independence protesters by Parisian police in 1961. For 40 years, French officials ignored the massacre, which took place a year before Algeria gained its independence from France after an eight-year war. In 2012, French President François Hollande acknowledged the killings for the first time on a visit to Algeria, and Macron took it further by attending Sunday's commemoration at the site where the events happened in the French capital. Still, many had hoped the French President would go further and take responsibility for a "state massacre," for a crime many historians consider the most violent repression of a peaceful demonstration in post-War Europe.


​Low trust, high risk: The global rise of violence targeting politicians

The deadly stabbing of British Parliament Member David Amess confirms an ongoing study on trust and governance in democracies around the world: It's bad. In The Conversation, James Weinberg — the study's author and a lecturer in Political Behavior at the University of Sheffield — writes:

⏪ The assassination of Amess, who was stabbed to death in his constituency on Friday, is a tragic moment for democracy. What makes it even more devastating is that such a catastrophic failure is not without precedent or predictability. Labour MP Jo Cox was shot at her constituency surgery in 2016. Before her, another Labour MP, Stephen Timms, survived a stabbing in 2010. And Andrew Pennington, a Gloucestershire county councilor, died in a frenzied attack in 2001 while trying to protect local Liberal Democrat MP Nigel Jones.

☝️ Beyond these critical junctures in the public debate about politicians' safety, elected representatives must live with an increasingly insidious level of popular cynicism that threatens violence on an almost daily basis.

🇬🇧🇳🇿🇿🇦 Not only are these experiences of abuse or threats of physical violence felt across both sides of the political aisle in the UK — they also appear to be growing more common in other democratic contexts where the climate of politics has been presumed to be both calmer and more volatile, from New Zealand to South Africa.

Read the full piece from The Conversation, now on

✍️ Newsletter by Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

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