Iceland. According to
Countryaah reports, the year became the most dramatic for Iceland since
independence. After a severe earthquake in which about
thirty people were injured, the nation experienced the cheer
of Olympic silver in handball and then thrown into a
financial crisis that seemed to be the worst in the world.
In the spring, I resumed the hunt for the election,
despite the fact that the government was divided on the
issue. Together with Norway, Iceland also returned to export
whale meat to Japan for the first time since the beginning
of the 1990s.
President Ólafur Ragnar Grímsson got his term extended by
a fourth term without any election being held. At the
beginning of August he swore in, since no other candidate
has been nominated. The president then traveled to Beijing
and led the Icelandic heirloom when the men's national
handball team conducted a sensational Olympic tournament and
took silver. The cheer at home in Iceland knew no bounds.
But the joy quickly turned into economic depression. The
long overheated Icelandic economy, the risk capitalists
'huge investments abroad, the banks' soaring lending, rising
inflation and a falling krone value made Iceland extremely
vulnerable to the approaching global financial crisis. The
value of the Icelandic banks' liabilities and commitments
was estimated at ten times the country's GDP. This financial
bubble burst after the US investment bank Lehman Brothers
collapsed in September and the international loan market
The Icelandic krona collapsed in value against the euro.
Iceland's three leading banks Kaupthing, Landsbanki and Glitnir
were short of money and forced to sell foreign assets.
Through a crisis law, the parliament gave the government the
opportunity to take control of the banks, which also
happened - according to Prime Minister Geir Haarde to save
the country from economic collapse. But in order to cope
with the support of the banks and at the same time pay for
the country's imports, the government must borrow at least
six billion dollars. Iceland turned to the International Monetary
Fund (IMF), to the Swedish Riksbank and to the other Nordic
central banks for assistance. But when, among other things,
British savers' accounts in bankrupt Icelandic-owned banks
were frozen, the British government demanded deposit
guarantees, a condition that was also supported in the
Nordic and other EU countries. IN.
I's closest neighbors Norway and the Faroe Islands as
well as Poland made loans without demanding Icelandic
counterparts. In a speech, the president of I went into
fierce attacks against the rest of the Nordic countries and
tried to appease Russia by offering the closed US air base
In order to try to curb rising inflation and defend the
Icelandic krona, the central bank raised the key rate to 18
percent. Wages were lowered, notice was given and
unemployment was expected to rise to 10 per cent, while the
country's GDP is expected to decline by more than 8 per cent
in 2009. The financial crisis led to personal tragedies for
Icelanders taking large loans in euros. Foreign guest
workers left Iceland and several Icelanders chose to emigrate.
In Reykjavík, thousands of people demonstrated every
Saturday demanding that the Governor of the Central Bank
Davíđ Oddsson resign and that new elections be held. At the
same time, support for Icelandic membership in the EU grew
to 70 percent in an opinion poll. The ruling Independence
Party decided to postpone its national meeting until January
2009 and, in the light of the financial crisis, review its
opposition to the EU and the euro. Coalition partner The
Social Democrats demanded that Iceland apply for EU membership
and move to the euro.
In mid-November, Iceland found it too good to accept the
British and Dutch claims for compensation to those who lost
savings when Icelandic banks went bankrupt. It increased I's
debt burden, but meant that the country was given the
go-ahead for loans from the IMF - the first time in 30 years
for a western country. The loan package included $ 2.1
billion from the IMF and $ 3 billion from Sweden, Norway,
Denmark, Finland, the Faroe Islands, Russia and Poland.
The opposition criticized the government for dealing with
the financial crisis and demanded a vote of no confidence in
the parliament. After a tough debate, however, the
declaration of disbelief was voted down by the government's
The Icelandic krona lost almost half its value during the
year. GDP had declined by several per cent during the second
half of the year, inflation had risen to just over 18 per
cent in December and food prices had risen by more than 30
per cent during the year.