macrohistory & world report

Republic of Iceland


Iceland (capital Reykjavik) and neighboring states

World Factbook as of November 2014: "Iceland's Scandinavian-type social-market economy combines a capitalist structure and free-market principles with an extensive welfare system. Prior to the 2008 crisis, Iceland had achieved high growth, low unemployment, and a remarkably even distribution of income. The economy depends heavily on the fishing industry, which provides 40% of export earnings, more than 12% of GDP, and employs nearly 5% of the work force. It remains sensitive to declining fish stocks as well as to fluctuations in world prices for its main exports: fish and fish products, aluminum, and ferrosilicon. Iceland's economy has been diversifying into manufacturing and service industries in the last decade, particularly within the fields of software production, biotechnology, and tourism. In fall 2013, the Icelandic government approved a joint application by Icelandic, Chinese and Norwegian energy firms to conduct oil exploration off Iceland's northeast coast. Abundant geothermal and hydropower sources have attracted substantial foreign investment in the aluminum sector, boosted economic growth, and sparked some interest from high-tech firms looking to establish data centers using cheap green energy, although the financial crisis has put several investment projects on hold... Iceland owes British and Dutch authorities approximately $5.5 billion for compensating British and Dutch citizens who lost deposits in Icesave when parent bank Landsbanki failed in 2008. Iceland began accession negotiations with the EU in July 2010, but decided in mid-2013 to suspend negotiations with the EU because of concern about losing control over fishing resources and worries over the ongoing Eurozone crisis."

Economic growth rate:
2012: 2.7%
2011: 3.1%
2010: -4%

Unemployment rate
2012: 5.6%
2011: 7.4%

Healthcare expenditures
2009: 4.2% of GDP, compared to 16.2% for the United States

For a single worker without children, in the year 2001, including contributions to Social Security, an Icelander earning an average wage paid 25.7% of income for taxes. For US citizens this was 30.0%, for Sweden 48.6%.


In 2008, Iceland was described as a happy and most livable of countries, according to the United Nations Development Programme's (UNDP) Human Development Index rankings. It's unfortunate that centuries ago the inhabitants cut down most of the trees for firewood. Iceland, with its own currency, has recovered from the banking crisis of 2008 better than has eurozone nations. It's current prime minister is a left-of-center former airline stewardess, Jóhanna Sigurðardóttir, married to the artist Jónína Leósdóttir.

A woman from Germany writes in the Iceland Review Online, February 14, 2013:

"I love the fact that almost the entire energy supply here derives from renewable energy sources. That doesn't only make water and electricity more than affordable but it also gives me a clear conscience. Furthermore, Icelandic water is pristine and high-quality drinking water. Wherever you go you are provided with free and fresh tap water, when partying in a club, for example, you don't have to pay for a glass of water. Awesome."

Health service in Iceland is primarily financed by the central government. Taxes pay for 85% of healthcare. The other 15% comes from medical service fees.

Living in an urban area
2010: 93%. Most live near the sea or in a river valley that opens to the sea.

Ethnic groups
homogeneous mixture of descendants of Norse and Celts 94%, population of foreign origin 6%

Icelandic, English, Nordic languages, German widely spoken

2006: Lutheran Church of Iceland (official) 80.7%, Roman Catholic 2.5%, Reykjavik Free Church 2.4%, Hafnarfjorour Free Church 1.6%, other religions 3.6%, unaffiliated 3%, other or unspecified 6.2%

US State Departement: "...literature and poetry are legendary passions with the population. Per capita publication of books and magazines is the highest in the world."


In the North Atlantic, northwest of Britain. More than twice the size of Switzerland – 103,000 square kilometers versus 41,290. Capital: Reykjavik.


Parliamentary and republican democracy.

Iceland became autonomous after 1874 and completely independent from Denmark in 1944.

Recent History

Iceland was settled by Norwegian, Scottish and Irish immigrants in the late 800s and the 900s CE. 

2000 and 2001: Iceland privatizes its three largest banks and it deregulates banking. The bankers go wild trying to make money with money – an investment binge by banks and companies, paid for almost entirely by foreign borrowing. Iceland had surprising economic growth. As Krisin Vala Ragnarsdottier writes, the "staid, conservative coommunity of 320,000 ... seemed to turn overnight into a jet-setting class of financiers ... the people involved, generally referred to as the Viking raiders, were young, hip and male nouveaux riches. All of a sudden, they 'owned' department stores, shops and banks across Europe. They travelled in private jets and paraded impressive boats, cars and houses."

Iceland's three major banks build up a debt in excess of €50 billion euros, almost six times GDP. One of the banks, Landsbanki, begins attracting hundreds of thousands of British and Dutch savers by offering high interest rates

October 2008: At the height of the global credit crunch, within one week three major banks comprising ninety percent of the Icelandic banking system fails – one of the fastest and most comprehensive banking crises in history. Iceland parliament passes emergency legislation that allowes a government created agency to take over the domestic operations of the three largest banks. The government guarantees saver deposits and freezes the assets of its bank's that exist in Britain. Britain's prime minister, Gordon Brown, according to the BBC, "condemned Iceland's handling of the collapse of its banks and its failure to guarantee British savers' deposits." British taxpayers are unhappy with Iceland, and Iceland's taxpayers are unhappy at having to pay their government to rescue the banks. Meanwhile, Iceland's stockmarket falls from 9000 in mid-2007 to a to around 700. In early 2008 it will drop to 200.

November 2008: Movements of capital to and from Iceland are banned without a license from the central bank. Iceland's currency, the króna, is collapsing from what had been 50 króna to the dollar to around 135 to the dollar in mid-month.

January 2009: Iceland's currency continues to collapsed from around 82 in mid-2007 to the euro to 180 to the euro.

February 1, 2009: Iceland acquires a new prime minister, Johanna Sigurdardottir. Her's is an interim government created by parliament.

August 14, 2009: the government announces plans to finalise the terms for getting two of the three failed banks, Kaupthing and Islandsbanki, back into the business of making money.

January 2010: President Olafur Ragnar Grimsson wins favor from the public by his refusal to sign a bill that would use taxpayer money to compensate Britain and the Netherlands for the 2008 collapse of the online bank Icesave.

March 2011: Iceland's has been down around 110-115 to the dollar since early 2009. currency continues to collapsed from around 82 in mid-2007 to the euro to 180 to the euro. This means wages in Iceland have dropped (paid in cheaper money). This makes Iceland manufacturing more competitive and Iceland a more attractive place for tourists.

April 9, 2011: a referendum by Icelanders rejects a negotiated settlement to reimburse the British for money lost with the failure of Iceland's banks.

June 9, 2011: Iceland's government is able to raise $1 billion with a bond issue. This indicates that international investors have given Iceland and its new banking system a clean bill of health.

August 2011: Iceland completes a three-year IMF-supported restructuring program, including loans of $10bn. Iceland has started borrowing again on global credit markets.

March 29, 2012: The Financial Times reports that Iceland's recovery has been led by fishing and tourism, helped by the 50 percent depreciation of Iceland's currency against the euro since 2007-08.

June 13, 2012: Joseph Stiglitz, economist, says, "Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks."

June 22, 2012: Iceland repays $483.7 million in loans to the International Monetary Fund, an early repayment, which follows a $900 million repayment in March as it works its way out of its financial meltdown in 2008.


Copyright © 2009-2013 by Frank E. Smitha. All rights reserved.