Durham University
English Language Centre
PARSE Programme 2015
Assignment Title: Iceland was right to blame its politicians and bankers for the
crash. Discuss.
Teacher: Andy Mason
Pre-sessional Student: Georgios Loukopoulos
Pre-sessional ID: 000629961
Word count: 1,588
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Abstract
The purpose of this essay is to portray a comprehensive analysis of Iceland
crash. In this regard, it aims to present a brief historical review of the incidents
that lead to the collapse of the banks, also seek to answer what are the
causes of this this failure and finally the warnings about the coming credit
boom. What is more, to gain further insight into the issue we investigate a
comparison of Iceland with some key countries in order to demonstrate a
more thorough analysis of the financial situation in Iceland and its strategy
throughout the years. Overall, the evidence of Iceland crisis clearly
demonstrates that, it had experienced some specific characteristics that
turned it into a highly vulnerable country regardless of the deterioration of the
global economic conditions of 2008.
Key Words: Iceland Crash, Icelandic Banking Crisis, Global Financial Crisis
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An Independent Country: The Case of Iceland
In recent years the vast majority of countries are members of unions or
organizations in order to protect themselves from financial crisis or to
empower firstly their financial, and thereby their educational and health
system. However, this entire period there is a country with unique
characteristics which was completely independent from unions or financial
organisations until 2008. In detail, Iceland was a country with special features
known as the “vulnerable quartet” (Buiter & Sibert, 2008). The “vulnerable
quartet” means a small country with a large banking sector, its own currency
and limited fiscal capacity. Therefore, this essay presents a historical review
of financial situation in Iceland before the crisis and the reasons for
characterizing Iceland as the “vulnerable quartet”.
In 2000 the population of Iceland was about 300,000 people and was the
most sparsely populated country in Europe. According to the Icelandic
government, the majority of people lived in urban areas and a smaller
percentage of them in Reykjavik the capital of Iceland. The main areas of
work of Icelandic people were firstly in the field of agriculture and then mainly
on fishing, aluminium and finally in finance. Initially, the fishing industry had
grown to symbolize Iceland’s economic independence from its Scandinavian
neighbours. Specifically, this phenomenon led Iceland to increase its exports
and other emerging markets. Finally, from around 2003 to 2007 it expanded in
the financial intermediation and construction which were by far the fastest
growing sectors in Iceland during that time (Carey, 2009).
Nonetheless, the global economic and financial crisis in 2008 had
undoubtedly contributed to negative growths to a plethora of countries such
as Iceland, but also revealed numerous financial, strategic and managerial
weaknesses of its country. As a result, Iceland encountered an
unprecedented economic crisis which occurred at a great rate from within and
then from the behaviour of external factors.
The remainder of the essay is organized as follows. The essay briefly
discusses the causes of the crash. Then, it will attempt to show comparisons
between Iceland and the other countries and mention the warnings about the
crisis. Finally, the essay presents the conclusions.
The bubble of Iceland
There is no one point in time that can be singled out as the starting point for
the developments that led to the economic turmoil in Iceland. In addition, it is
evident that any analysis of this complicated and multi-faceted event can only
