Fishing For A Crisis

As it has been known for centuries Iceland was a country that revolved around fish; people ate, procreated, and most of all traded fish. So how did this once small fishing economy suddenly progress into a highly sophisticated society with strong financial growth? The answer lies in Iceland’s currency, the Krona. 

Over the years Icelandic banks grew at an extraordinary rate and so the Krona became extremely valuable. This resulted in an economic boom and Iceland became one of the wealthiest places in the world. Olafur Arnarson (April 2008) commented on Iceland’s unexpected transformation in his book, “Sofandi and Feigdarosi” by remarking that everything had changed so much, so quickly. 

However sometimes success comes at a cost. Financial organisations started to enquire about Iceland’s increasing wealth and thus began raising interest rates to try and control inflation. What was the outcome of this? Not surprisingly of course, a financial crisis. As debt began to rise, Icelandic banks began to borrow money from foreign banks and by October 2008 they had borrowed over six times the amount of capital the country produced in a year. This caused the Icelandic banks to become insolvent, which in return triggered off the recent Icelandic crisis.