Rising from the Ruins — A Fragile Economic Recovery

Abstract

Iceland suffered a more brutal blow to its economy in the international financial crisis than perhaps any other nation. The small island was severely hit in autumn 2008, when 90 per cent of its financial system, including its three main banks, collapsed. The tiny currency lost more than half its pre-crisis value, inflation escalated and unemployment rose rapidly, with an avalanche of bankruptcies in its wake. While government expenditure surged, the state’s revenues were evaporating. The economy contracted by almost 13 per cent from its peak in late 2007 while both public and private debt grew way beyond sustainable levels. The country was financially devastated.