Ecosystem Deep Dives #20: Iceland - Small but mighty
Hit hard by the 2008 financial crisis, Iceland doubled down on its strengths to come out of its economic headache. The country's start-up ecosystem followed a similar route.
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First founded more than 1,000 years ago by fearless Norse and Celtic during the Viking Age of Exploration, Iceland is often recognized as one of the world’s most progressive countries, especially in matters such as gender parity. The country’s parliament “Althing” claims to be the longest running parliament in history, starting in 930. Despite its small population of around 366,000 people, needless to say Iceland has continuously pulled its weight on the world stage.
Fast-forward to 2008 and the country once again gained attention internationally, but this time for the wrong reasons. Indeed, the country was hit with one of Europe’s worst economic crisis, fueled by overzealous bankers who managed to accumulate liabilities almost 10 times the size of the national economy. Due to the sheer size of the crisis, Iceland’s central bank didn’t even have sufficient cash reserves to bail-out the faulty banks (the opposite scenario of what happened in the US), leading to the crash of 3 of Iceland’s major financial institutions.
“2008 hit Iceland hard: the stock market plunged 80%, 3 major banks collapsed, the króna (national currency) lost 35% against the euro in the space of 9 months, inflation hit 14%, and half of the number of businesses were technically bankrupt. The financial crisis was the worst experienced by multiple generations of Icelanders.” - Source
The way Iceland dealt with their national version of the 2008 economic crisis (which severely hit the US, Canada and Europe) is fundamentally different than the way other countries did. Instead of bailing out banks, Iceland decided to temporarily nationalize them and send bankers to jail. In order to recover from the crisis, the government decided to devalue its national currency, the króna, in order to make its exports (such as fishing and aluminum) more competitive.