Monday, May 29, 2023
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Inés Martín de Santos

​We could all be Iceland

​Professor of the Department of Financial Administration and Accounting of the Complutense University of Madrid.

The figures are well known and the documentation widely disseminated in both the scientific and news fields. I refer particularly to the work that I published almost five years ago in the International Journal of World Economics and Law. What we need now is to reflect on the recent past of this country as a vaccine against other possible national crises.


The drastic changes in the Icelandic economy, produced in a short period of time, seem a singular phenomenon, at the time little comparable to the rest of the world economy but nevertheless, perfectly transferable.

Several factors support this consideration, among others: a small society with great influence of the criteria maintained in neighborly relations between members of the same community, prone to self-management systems; a historical tendency, at least from the cultural perspective, to inaction, the lack of ambition; and the preponderance of women in economic policy decisions.

The Icelandic economic crisis of 2008 appears in the economic literature as the spark that sets off the alarm of a larger international financial crisis.

The year 2008 is merely symbolic and arbitrary because in reality this crisis had been brewing since 1990.

Both the information in the mass media and the statistical reports of the International Monetary Fund, the Economic Commission of the European Union and the Central Bank of Iceland itself, the working documents of the OECD, as well as the studies published before and after 2008 coincide in pointing out an unplanned investment, highly speculative and loaded with a high risk.

The reasons why foreign capital chose this particular country as an investment center in adverse conditions have not yet been sufficiently clarified, despite the existence of documents between representatives of the International Monetary Fund and a representative of the Icelandic Central Bank on which appear the existence of macroeconomic imbalances, deficits in the balance of payments and low rates of savings, despite some errors that may occur in predictions such as those detected for the periods 1995-2002 and 2000-2007.

As for those principally responsible for this crisis, foreign capital has been pointed at first, and secondly, Icelandic politicians and bankers; but we must not forget that the domestic debt also reached very high levels; since 1994, the number of current accounts, debit and credit cards has tripled, loans have increased to 50% in 2005, loans at many times also doubled the percentage of gross domestic product, which is surprising in a population often considered conforming and with a high cultural level, which forces it in part to carry out its own analyzes in the field of Social Psychology.

The fact that Iceland during some time became a fashionable country for foreign investment was probably motivated more by advertising influences than by a deep analysis of its economic potential, and is indicative of the extended tendency at the beginning of the 21st century to speculative short term investments.

Although the division between politics and economy is difficult to discern, it is not unquestionable, and it seems advisable to use different criteria to solve social problems.

Establishing economic measures motivated by political attitudes does not seem the best way to fix social imbalances, even less so when more than half a century ago Bell announced the end of ideologies.

Given the seriousness of the current economic crisis, not only nationally but overseas, it seems necessary to make a call to the maximum responsible of the world economy to establish a minimum interventionist measures that do not condemn millions of people to poverty. 

In my opinion, today the economic system is based more on speculative exercises than on productive activities.

Returning to statistics which are very significant, in 1970 about 90% of international capital was devoted to trade and long-term investment (more or less productive activities) and 10% to speculation. By 1990, these statistics had been reversed: 90% corresponded to speculation and 10% to long-term trade and investment. The Icelandic solution to the crisis caused by the uncontrolled human ambition of a few has marked some distance from similar circumstances elsewhere.

This was considerably different to the solutions adopted in some other countries that have suffered a similar crisis, in the sense that those responsible were held legally accountable and those who hid the state of the accounts from the government have been prosecuted. But we do not know if all of them have been so.

This behavior is not surprising because the Icelandic culture was never in favor of placing blind trust in leaders or managers, rather adopting decisions of an assembly nature. What could be considered a weakening of a nationalist state is what may have led this country to a dependence on Norway and Denmark for more than ten centuries.

However, the behavior of the Icelandic government was legal (but we do not know if it was just), that is, pay most of its debt because Iceland cannot become an island greater than it is and escape the fabric of the global economy. 

The Icelandic disaster can occur in any other national economy and forcing us to consider if the people should pay for the mistakes of its leaders.

The tentacles of capital created a fictitious economy in Iceland and the Icelanders believed in the dream until they woke up to reality.

The rapid recovery of Iceland, with public debt at 50% of its GDP and the very low percentage of unemployment rate are not exclusively the result of adequate economic policy measures, but also due to the support of a cultured and austere society that has looked to itself. Implementing similar methodology is urgent given that in similar circumstances, other countries would surely not evolve in the same way, especially when a large proportion of them, due to globalization and international agreements, would be unable to sustain themselves even with autarchic systems.



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