Iceland (Lonely Planet, 7th Edition) - Fran Parnell [14]
Iceland has a tradition of coalition government, and is a democratic republic with a peaceful reputation. In late 2008, however, the capital Reykjavík was rocked by months of fierce protests outside the Icelandic Parliament, as the then-government’s popularity evaporated along with the country’s wealth. In January 2009, Prime Minister Geir Haarde resigned, citing ill health as his reason. His replacement, Jóhanna Sigurðardóttir, hit international headlines as the world’s first openly gay prime minister. Her major act to date was to submit the government’s application for EU membership on 17 July 2009. It’s thought that membership and the adoption of the euro as the country’s currency will soothe Iceland’s economic troubles, although it’s not a universally popular solution – a Gallup poll taken in September 2009 suggested that only 33% of the population support EU membership.
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ICELAND’S ECONOMIC MELTDOWN
Everything was looking so rosy: in early 2008 Iceland was full of confidence and riding high. Much of the country’s wealth, however, was built over a black hole of debt – its banks’ liabilities were more than 10 times its annual GDP. The ripples of the worldwide financial crisis became a tidal wave by the time they reached Icelandic shores, washing away the country’s entire economy.
By October 2008 the Icelandic stock market had crashed; the króna plummeted, losing almost half its value overnight; all three national banks went into receivership; and the country teetered on the brink of bankruptcy.
Relations between Iceland and the UK were strained following the collapse of Icesave (a subsidiary of Iceland’s national bank Landsbanki), in which 300,000 British customers had invested their savings. UK prime minister Gordon Brown invoked antiterrorist laws to freeze Icelandic assets; this was seen by many Icelanders as heavy-handed and the main cause of Kaupþing bank’s collapse.
Help came in November 2008 with a US$2.1 billion International Monetary Fund (IMF) loan and a US$3 billion bailout from Scandinavian neighbours. Nevertheless, spiralling inflation, wage cuts and redundancies meant that Icelanders’ incomes fell by a quarter in real terms, and national pride took a severe kicking. At home, protestors rioted in Reykjavík, furious with a government they felt had betrayed them; Prime Minister Geir Haarde resigned in January 2009.
One of the new government’s first steps was to apply for EU membership, with a view to changing their currency from the króna, which has always been prone to fluctuation, to the more stable euro around 2011.
The crash has been a terrible blow to Icelanders, and the short-term situation is still uncertain. It’s thought that Iceland’s economy will continue to suffer until 2011 when it’s hoped the economic situation will begin to right itself. In the meantime, the weak króna has made Iceland cheaper for foreign visitors than it has been for decades – so at least the country’s tourists have something to smile about.
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Despite the recent economic horrors, Iceland is one of Europe’s most developed countries, with extremely high literacy levels, consistently high standards of living, and one of the highest levels of computer and mobile-phone use in Europe. State education and health-care facilities are so good that there is no demand for private facilities, crime levels are extremely low and life expectancy high.
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In 2009 the executives of the bankrupt Icelandic banks were awarded the Ig-Nobel prize for Economics.
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For Icelanders today the most pressing questions centre around the country’s money troubles. Environmental issues surrounding new hydroelectric power plants and aluminium smelters in east Iceland (Click here) have taken something of a back seat.
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TIMELINE
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AD 600–700 Irish monks voyage to uninhabited Iceland, becoming the first (temporary) settlers. There is no archaeological evidence, although