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Iceland Mag

Business

Bouncing Back; Iceland‘s Economic Meltdown and the Journey Back to Prosperity

By Matt Eliason

  • Back in business The Icelandic economy is churning out pre-crisis numbers through 2014 year-to-date. The pending removal of Iceland's capital controls is the next step in declaring the recovery a full-blown success. Photo/Vilhelm

In a country renowned for its natural beauty, active volcanoes and peaceful people, one ugly scar haunts this secluded Nordic population; the 2008 Icelandic banking catastrophe. While tourists still recognize Iceland for its picturesque landscapes and “that place where they film Game of Thrones,” financial professionals think of Iceland for one singular reason - the country with the single largest banking collapse in the history of the world. Currently, the "Viking nation" is doing their best to erase this international reputation by bouncing back even stronger than before.

The epic collapse first reared its ugly head in the fall of 2008 after years of asset inflation and bad loans given out by irresponsible, and largely inexperienced, Icelandic financiers. Brought on by the deregulation of Icelandic banks in 2001, the unethical behavior exemplified by Iceland’s major banks and “financial professionals” in the years that followed, resulted in a national debt total exceeding ten times the tiny country’s gross domestic product.

Over the past six years the Icelandic people have attempted to correct their country’s banking blunders through a series of emergency measures designed to mend their economy and stabilize their currency, the Icelandic Króna. With six year emergency bailout bonds granted during the crisis now maturing, the Icelandic government is taking the necessary steps to stabilize its economy back to its pre-crisis state. Important to note amongst the chaos of the whole debacle, was the government’s decision to let Iceland’s three biggest banks fail, a resolution that has drawn international praise and recognition. 

It may be too early to tell, but financial analysts are now calling Iceland’s economic recovery a “European success story.” The Icelandic Króna has rebounded, the real estate market is now improving, and the economy has begun to pick up along the vibrant, tourist ridden streets of its capital city, Reykjavik. As a result, The Central Bank of Iceland, which has managed the country's government debt since 2007, is now considering a return to the international debt market as well as the removal of Iceland's capital controls, which have helped guide the nation back to stability.

As an American now living in Reykjavik, I have experienced this recovery first hand. From a prosperous international player, to a bankrupt punch line, back to a European model for financial recovery, here is the story of the Icelandic banking system.

Bouncing Back

Chapter 1: An Artificial Properity

Chapter 2: Mending the Wound

Chapter 3: The Current State of the Icelandic Economy

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