Instead of imposing devastating austerity measures and bailing out its banks, Iceland let its banks go bust and focused on social welfare policies. It has now repaid 85 percent of U.K. claims, and the Icelandic finance minister announced recently that all will be settled by the end of the year.
When the global economic crisis hit in 2008, Iceland suffered terribly—perhaps more than any other country. The savings of 50,000 people were wiped out, plunging Icelanders into debt and placing 25 percent of its homeowners in mortgage default.
Now, less than a decade later, the nation’s economy is booming. And this year it will become the first culturally European country that faced collapse to beat its pre-crisis peak of economic output.
That’s because it took a different approach. Instead of imposing devastating austerity measures and bailing out its banks, Iceland let its banks go bust and focused on social welfare policies. In March, the International Monetary Fund announced that the country had achieved economic recovery “without compromising its welfare model” of universal health care and education.
Iceland allowed those responsible for the crisis—its bankers—to be prosecuted as criminals. Again, a sharp contrast to the United States and elsewhere in Europe, where CEOs escaped punishment.
“Why should we have a part of our society that is not being policed or without responsibility?” asked special prosecutor Olafur Hauksson in the wake of the collapse. “It is dangerous that someone is too big to investigate—it gives a sense there is a safe haven.”
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