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Health & Fitness

Iceland's Revolution: The good, the bad and the ugly

The 2008 economic crisis broke Iceland. It was followed by revolution, overturning the government and imprisoning irresponsible bank CEOs. Today their economy is growing. What can we learn?

2008 ended badly, financially speaking. For Iceland it was devastating!

Privatized for less than 15 years Icelandic banks had over-expanded by borrowing in foreign markets while offering high interest investments. The Central Bank of Iceland, which is similar to the US Federal Reserve System, was stripped of most of its powers; bank reserves against liabilities were virtually eliminated - solely to reduce the cost of funding money.

Then, in September 2008, the European Central Bank tightened its lending qualifications causing Lehman Brothers to fail. Two weeks later, Iceland’s third largest bank Glitner failed. Within days the second largest bank, Landsbanki, failed. Landsanki had been operating internet branches (IceSave accounts) in the UK. British investors had been quick to deposit money (4bn euros) in the high interest accounts even though economists raised concerns about Iceland’s financial stability. From back to 2006, financial analysts were concerned over the Icelandic banks high level of foreign debt and the wide fluctuations in their currency, the krona.

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Immediately, in response to Landsbanki failure, the United Kingdom enacted anti-terrorism laws and froze approximately $6.8 billion of Icelandic assets. This caused Iceland’s largest bank Kaupthing to fail. By November 2008 BBC News reported the krona lost half its value. Inflation and unemployment skyrocketed.

Iceland, voted best place to live by the United Nations in 2007, was a country in shambles and was tagged as a terrorist nation in 2008.

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The citizens of Iceland took to the streets demonstrating against the Central Bank of Iceland and calling for the resignation of its leaders. They also demonstrated against the government. CBC News reported “Demonstrators accuse the government, which was elected last year, of not doing enough to regulate the banking industry and have called for early elections.” Demonstrations continued until a new government was implemented.

The Prime Minister, Geir Haarde, resigned late January 2009 followed by most of his party members who held a two-thirds parliamentary majority. On February 26, 2009 the leaders of the Central Bank resigned. Johanna Sigurdardottir took over as Prime Minister in February 2009.

The new parliament commissioned an investigation into the financial collapse. The Black Report detailing the findings, was issued in April 2010 and provided enough information to arrest top bankers and government officials. In April 2012 the New York Times reported on the former Prime Minister’s trial “Mr. Haarde was found guilty of failing to keep his cabinet informed of major developments during the 2008 financial crisis, but was cleared of three more serious charges of negligence.” Iceland’s bank executives were not so lucky and many received jail terms along with heavy fines for crimes such as fraud and falsifying documents.

Today, Iceland is recovering. Unemployment has dropped to 8.5% down from 9.3% and the economy is projected to expand 2.4 percent this year and next,  which is great compared with 0.2 percent in the Euro community. Although, it still has to deal with the United Kingdom and Netherlands over the billions lost in the IceSave and Kaupthing Edge internet accounts. Understandably, the people of Norway don’t want the large tax bill to pay back the money that was lost by a few people. And, understandably the UK and Netherlands want their money back. The Icelandic government is working with its citizens and the UK and Netherlands to establish a fair payback.

Prime Minister Sigurdardottir said in a Reuters report “"In the years leading up to the crisis, the gap between the richest and the poorest in society widened and our measures in the crisis focused on diminishing this gap, with more equality." Iceland’s President Grímsson said to Adam Taylor in a Business Insider International April 2012 interview “If you want to excel in the 21st century economy, it’s more important to give high priority to your creative sectors, and IT companies and high-tech companies, and not building up big banks”

So, what can we learn from Iceland:

  • We have a voice. Nonviolent demonstrations do work to change government.
  • Money is a dangerous drug. People that become addicted to it will do anything to accumulate more money than they could ever use. Therefore, money transactions need to be monitored. Financial regulations are necessary.
  • Education is not a luxury. The US ranks 14th in education. If we want to be a global leader in the later part of this century we need quality education at an affordable price.
  • CEOs are responsible for the actions of their companies. They are responsible enough to accept millions upon millions each year in compensation; they should be responsible enough to be held criminally liable for the risky actions of their company when those actions cause harm to citizens.
  • Banks should be allowed fail just like other businesses.
  • A solid middle class is necessary for a healthy economy. Debt forgiveness can be used to lessen the gap between classes.

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