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When you look at the map, a seemingly abandoned island in the arctic stands out. It’s a land known for its peace, volcanos, fish, and unbelievably beautiful nature. The subject of my discussion today is the cream of Nordic nations, the land of Erik the Red, Iceland. In this paper, I will look into the incredible sufferings of Icelandic economy in aftermath of 2008 financial crisis the causes, the derivatives, and the impressive recovery that has taken place since. I’ll explore the matter in details and draw conclusions of what’s next for Icelandic economy, going forward.
In three year period of 2008-2011 Iceland suffered one of the worst financial crisis in history. It is bewildering how a country with population of only 320,000 could gather massive sums of money per capita, lose it all in such a short time period, and then manage an incredibly quick recovery since. Let’s start by shedding some light on the situation leading to the crash.
Iceland has always been affiliated with nature and fishermen. Fishing was the most prevalent occupation in Iceland, and a major backbone of their economy for years. Things turned direction in the 90s following the liberalization of Icelandic banks. Deregulation of banks added a whole new dimension to Icelandic economy and money was flowing more than ever. Glitnir, Kaupthing, and Landsbanki were Iceland’s three most notable commercial banks who were enjoying a great time. High savings interest rate offered by Icelandic banks attracted plenty of foreign investors1. Fishermen slowly turned into financial advisers to manage the capital inflow from outside, particularly from Germany and the UK and create more wealth for Icelandic economy in the long-term. As with every great financial crash, greed and carelessness played a part. Banks, having believed the hype and buzz, were careless handing out big mortgages to loads of under-qualified applicants on
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