Five years ago Iceland was the first European country to enter into a dramatic banking, currency and government debt crisis in the wake of the Lehmann shock. Since then the country made a tremendous comeback at least in public and political opinion. Suddenly Iceland is even seen as an example of crisis management and model for reforms.
"There was a time, it says in books, that the Icelandic people had only one national treasure: a common sense. It was taken away when men were sent to build the fairy castle"
But do these claims hold true and are they factual? Not everybody seems to agree as Cyrus Sanati who in a recent opinion column bluntly states the Icelandic time bomb is ticking again.
Now, Iceland is far away and a pretty small place. The banking sector today is purely domestic. So why should one bother? And if one should bother what are the implications of it?
The first question is easily answered. Yes one should bother because Iceland is a very good and straightforward example of the core elements of the current crisis still going on in Europe and political inability to deal with the real problems – debt levels -at hand. It is also a very interesting case since the size of the economy does not allow the related institutions like the central bank to employ monetary and debt measures to cover up structural problems.