In 2008, Iceland’s entire banking structure failed causing a devastating economic recession. This caused the economy to contract by 6.6% in 2009 and an additional 4.1% in 2010. At the time, many thought this situation was incurable and criticized Iceland’s tactics for recovery. However, those critics proved to be wrong. Last year, Iceland’s recovered economy grew faster than both the United States and European economies. Now the country is ranked high in terms of economic and political stability. How exactly did Iceland complete its remarkable economic recovery?
In the case of Iceland, it might be hard to believe that morality and unconventional tactics were the keys for recovery. Instead of bailing out failed banks, Iceland forgave mortgage debt for its population and completely started over. Iceland also indicted any bankers responsible for fraud that contributed to the financial collapse of 2008. Iceland President Olafur Ragnar Grimmson questioned the conventional tactics of bailing out banks by stating that ordinary people should not bear the consequences of bankers’ failures through taxes and austerity measures. He also questioned the long-term viability of these bailouts by saying, “People in enlightened democracies are not going to accept that in the long run.”
To further its economic recovery, Iceland implemented currency controls and refused to introduce austerity measures that were being introduced throughout Europe. Iceland’s road to recovery has not been easy every step of the way. Iceland must now begin the process of removing the previously implemented capital controls in order to steady its currency. This has the potential to knock the recovery off course. However, the International Monetary Fund has predicted that economic output will increase by about 3% this year and in 2015. Many Icelanders have welcomed this news as many citizens must maintain two or three jobs to provide a stable living after the 2008 economic collapse. Difficult challenges still lie ahead for recovery and citizens will continue to bear some of the burden through higher taxes. Although its recovery has not been perfect in all aspects, we can celebrate how Iceland approached its economic recovery with honor, integrity, and moral high ground.