The failed state of Iceland
The full horror of the country’s bank-led collapse is still emerging. A new generation of regulators is trying to sort out the mess as prosecutors attempt to bring the perpetrators to justice but, as Elliot Wilson discovers in Reykjavik, there’s a long road ahead to recovery.
IN A WORLD where international reputations seem to topple like dominoes every few months – Greece being the latest casualty – it’s worth stepping back in time to the mother of all financial disasters. When Iceland’s banking sector disintegrated in autumn 2008 it spelled the end for the nation’s big three lenders – Kaupthing, Glitnir and Landsbanki – creating the greatest banking collapse relative to economic size in history.
But it did much more. It shredded a tiny nation’s hard-won economic reputation in a heartbeat. It bankrupted hundreds of Icelandic firms, many of which had grown fat and rich with cheap loans from local banks. Worst of all it impoverished tens of thousands of poorly advised (and often greedy) consumers, who are now deeply in debt and bitter towards everyone – bankers, politicians, regulators and the entire global financial system that allowed Iceland to fly so high before burning up and falling to Earth.
While the eyes of the world are elsewhere, it’s interesting to see how a new generation of politicians and regulators in Reykjavik, backed by a coterie of teak-tough international advisers, are seeking to scrape the country’s tattered economy off the floor.