Iceland – from the saga to the crisis – who is to be blamed?

Iceland’s history starts from the year AD 874 when Ingólfur Arnarson became the first permanent Norwegian settler on the island. The settlement thereby established started to grow mainly because of the tight taxation policy of the kings of Norway at that time. Iceland became a historical “tax-heaven” as the president remarked in his speech in the MIT Global Startup Workshop (March 24-26, 2010) at Reykjavik. From 1262 to 1388 Iceland was part of the Norway, and from 1388 to 1918 part of Denmark. In 1940 British troops disembarked in Reykjavík, capital of neutral land, making Iceland involved in war operations in the Atlantic Ocean. The British Army was boosted up to 25,000 soldiers being relieved by the US Army a year later. In 1944 Iceland became independent. In 1946, the Allied forces left Iceland, which became a member of NATO in 1949. From 1951 to 2006, the US troops remained again in the country because of the Cold War.

The post-war period was followed by high economic growth, driven by the Marshall Aid program by the US. The externalities of US technology were decisive to Iceland to modernize infrastructure and to industrialize the country. By harnessing the abundant hydroelectric and geothermal power sources, Iceland's energy industry provides 80% used and all of Iceland's electricity as clean - proportionally more than any other country. A standpoint for that is that only 2% of about 313,000 Icelanders live in rural areas and about 75% live in Reykjavík. Still small farms with almost 100.000 horses are something unique.

The Mid-Atlantic Ridge between the North American and Eurasian Plates crosses the country from southwest to northeast being characterized by near 30 active volcanoes and by high temperature geothermal fields. About 10% of the country is covered in glaciers, including Vatnajökull, the largest in Europe. As the consequence of global climate change glaciers in south Iceland melt, retreating even at a rate of 100 meters per year. Iceland is a laboratory of forces forming our global landscape and a rich source of water deposits. Being attractive to over 500,000 travelers visiting the country annually, Iceland needs to protect its nature. In 1998, the Parliament decided to convert Iceland energy-independent, using 100% renewable energy, by 2050.

Iceland's economy is highly export-driven. Iceland's relatively liberal trading policy has been strengthened by accession to the European Economic Area in 1994 and by the Uruguay Round, which brought improved market access for Iceland's exports, particularly seafood products. The economy is now more diversified although marine products account for the majority of exports. Manufactured products constituted over 30% of all merchandise exports, including aluminum, and machinery and electronic equipment for the fishing industry. Iceland's primary trading partners are the EU, the US, Norway, and Japan. The main imports are cement, machinery and equipment, petroleum products, foodstuffs and textiles. The value of Iceland's exports is over $3 billion. Iceland’s imports have long been bigger than exports, reflecting the country’s dependent on foreign production factors. The current global financial crisis that has hit badly Iceland has changed the pattern, forcing the country to limit its imports.



Iceland is a free market economy with relatively low taxes, while maintaining a Nordic welfare system providing universal health care and tertiary education for its citizens. In the early 2000s, Iceland was one of the wealthiest and most developed nations in the world. In 2007, it was ranked as the most developed country in the world by the United Nations and the fourth most productive country per capita. In 2008, the nation's banking system systematically failed, causing significant economic contraction. Almost over one year the saga was over. On 5 January 2010, Iceland's President Ragnar Grimsson decided not to sign a law passed by the Parliament of Iceland, which provides for a state guarantee of repayment of loans provided by the UK and the Netherlands (Icesave loans). The Government of Iceland prepared a national referendum and contacted with the UK, the Netherlands, the EU and the IMF to explain the next steps. President Ragnar Grimsson hold an emotional speech in the MIT Global Startup Workshop (March 24-26, 2010) at Reykjavik. He asked who is to be blamed not giving an answer.