The 2008 financial crisis sent a shock to financial markets all around the world—even the strongest and most advanced economies took a hit. Iceland was no exception.
In October 2008, all major banks in Iceland, which represented nearly 88% of its baking system in asset terms, collapsed in just one week. When in this situation, what are you going to do?
Iceland’s Minister for Foreign Affairs, Lilja Alfredsdottir, addressed this question in her talk, that took place on September 21, 2016 at Columbia University’s School of International and Public Affairs, titled “Iceland’s Road to Recovery: Key Lessons.”
Minister Alfredsdottir emphasized that after the collapse of its banking system, Iceland had to “reinvent itself” and ring-fence the sovereign. Prior to making robust efforts to find creative solutions to recover Iceland’s economy, the banking system collapse resulted in a current account deficit of twenty-six percent, depreciation of Iceland’s currency, a credit and asset boom, and significant capital outflow pressures.
Moreover, Minister Alfredsdottir noted that it was important for the government of Iceland to ring-fence its sovereign “by all means” and it was even more important to do so at an early stage.
The pressures mentioned adversely impacted the government of Iceland, businesses, and households alike; however, since reforming both its monetary and fiscal policies, Minister Alfredsdottir was excited to highlight that today, Iceland’s economy has made a significant recovery such that sovereign debt has been significantly reduced, unemployment is very low, and at present, Iceland is experiencing a current account surplus.
In addition, credit rating companies have reported that Iceland’s outlook is both “positive” and “stable.”
The event was co-sponsored by the Center on Global Economic Governance and the Program for Economic Research at Columbia University.
Click here to view Minister Alfredsdottir's presentation.
Jerrel Baker, MIA ‘17
Department Research Assistant