LESSONS FOR EUROPE FROM THE 2008 ICELANDIC BANK COLLAPSE
PROFESSOR HANNES H. GISSURARSON
The 2008 Icelandic bank collapse was spectacular. Iceland, a prosperous, peaceful but tiny Nordic country suddenly found herself under siege, first from hedge funds, and then from her neighbours and long-time allies who not only denied liquidity help to her struggling banks in the international financial crisis of 2007 and 2009, but also invoked an Anti-Terrorism Act against her, putting her in the same category as the Taliban, Al-Qaida, Sudan and North Korea.
In the course of three days, 6–8 October 2008, all three major Icelandic banks fell. Icelanders were not even sure whether they would be able to import vital food and medicine. To add insult to injury, the British and Dutch governments, with the connivance of the other Nordic countries, were able to prevent all assistance from the International Monetary Fund (IMF) unless the Icelandic Treasury guaranteed the obligations of the Icelandic Depositors’ and Investors’ Guarantee Fund (IDIGF), at the time estimated to be an enormous financial liability, probably locking Iceland in a debt prison for decades. The Icelandic government reluctantly bowed to pressure, but in two referenda Icelandic voters rejected deals based on the British and Dutch demands, and in 2013 Iceland won her case before the EFTA Court. No less spectacular has been the rapid Icelandic recovery.
In 2017 Iceland again joined the ranks of the world’s most prosperous countries, with a flourishing economy and profitable new banks established on the ruins of the failed ones.
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