Protesters outside the Icelandic parliament on 15th November 2008. Photograph: Wikipedia.
On October 9th 2008, Iceland found itself in the most severe economic crisis in Europe for 60 years, when their 3 largest banks – Kaupthing, Glitnir and Landsbanki – failed because of their excessive debts and unsustainable growth. This sent the Krona down 50% compared to other major currencies, and unemployment increased to rates of over 9% by the middle of 2010.
At the time of the collapse, the 3 biggest bank’s assets were at an astonishing ratio of 9 times the Gross Domestic Product of Iceland, in one of the greatest bubbles to grip any nation in the 2008 global financial crisis. A special investigation committee reporting in 2010 concluded that the 3 banks failed because of “their rapid expansion and their subsequent size”.
This economic calamity forced Iceland to look to the IMF for financial assistance, agreeing a $2.1 billion loan with the organisation on the 24th October 2008. It also led to the greatest migration of people out of Iceland since 1887, with close to 11, 000 people migrating (a net negative migration of -4, 835) to other European countries, mainly to Poland, Norway and Denmark.
However, unlike most Western nations who suffered a financial collapse in 2008, Iceland took the unprecedented step of holding complicit individuals accountable for their role in the crisis. They proceeded with the prosecuting major figures in the banking sector who were involved with fraud and mismanagement in the run up to October 2008, and even took their former Prime Minister to court.
Two such banking figures who were prosecuted in the aftermath of the crisis were Laurus Welding, the ex CEO of Glitnir, and Gudmunder Hjaltason, a former director at the bank, who were both sentenced to 9 months in jail for fraud.
At Kaupthing bank, 4 high level figures were all given jail time for market abuse, with former chief executive Hreidar Mar Sigurdsson being dealt the longest sentence of 5 and a half years in jail.
Former Prime Minister Geir Haarde, who is the only leader in the world to be put on trial in relation to the 2008 global financial crisis, was found guilty of failing to hold emergency cabinet meetings before the implosion, but he was cleared of 3 more serious charges, which would have seen him spend up to 2 years behind bars.
Iceland provides an example to other nations that it is possible and necessary to prosecute bankers and politicians who were involved in the 2008 global crisis, which paved the way for European wide austerity and worldwide economic recession/depression, when politicians signed the public on to infinite amounts of private debt. Future generations now face the outlook of perpetual debt in the coming years, unless a radical transformation in the situation occurs, and some shred of justice prevails.
The 2010 special investigation committee report also revealed an incredibly pertinent issue in the global financial crisis: the need for most countries to adopt a version of the USA’s 1933 Glass-Steagall act – a separation of the commercial and investment activities of banks – which was implemented in America after the great depression, but was later repealed in 1999.
The report states;
“The SIC investigation into the Icelandic banks’ operations indicates that, as a consequence wider authorisation for the operations of financial institutions in the last few years, their operational risk increased significantly……. They were authorised to engage in investment banking in conjunction with the traditional activities of a commercial bank, although this scope for increased risk-taking did not go hand in hand with satisfactory restraints and increased equity requirements.”
Implementing Glass-Steagall would reduce vast amounts of risk on the global financial system, as irresponsible speculative banking practices would be split from retail banking, allowing investment houses to go bankrupt without jeopardising the whole financial system.
On the road to recovery:
Iceland is now performing well considering the severity of their economic problems, though it is not uncommon for people to work 60-70 hour weeks to maintain the high standards of living they are accustomed to.
The people of this small Nordic island of only 315, 000 people are powering the economy back to a prosperous system, with their diligence and ingenuity.
Unemployment has decreased to 4.8% in December of 2013, falling from heights of 9.2% in September of 2010. Iceland’s economy grew by 6.6% in the 3rd quarter of 2013, with positive figures forecast for the future.
Although inflation is relatively high at 4.2%, Iceland is now beginning to grow at a promising rate, with a large part of the world looking on with surprise and envy.
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