Economic history of Iceland
Encyclopedia
The economy of Iceland remained similar for centuries after settlement in the 9th century, which was determined by natural resources and the constraints of culture and technology.
The Industrial Revolution
started in Iceland at the beginning of the 20th century.
At the same time diversified significantly. The developments in the areas of fisheries
, manufacturing
and services turned the stagnant agricultural
economy into a modern industrial state.
, led by Davíð Oddsson
, formed a coalition government with the Social Democrats
. This government set in motion market liberalisation policies, privatising a number of small and large companies. At the same time economic stability increased and previously chronic inflation was drastically reduced. In 1995, the Independence Party formed a coalition government with the Progressive Party
. This government continued with the free-market policies, privatising two commercial banks and the state-owned telecom Síminn
. Corporate incomes tax was reduced to 18% (from around 50% at the beginning of the decade), inheritance tax was greatly reduced and the net wealth tax abolished.
"Nordic Tiger" was a term used to refer to the period of economic prosperity in Iceland that began in the post-Cold-War 1990s.
The Icelandic Central Bank
approached the Bank of England
in March 2008 for assistance to support its currency as confidence in its heavily-indebted banking system began to ebb away.
Following sharp inflation in the Icelandic króna during 2008, the three major banks in Iceland, Glitnir
, Landsbanki
and Kaupthing
were placed under government control. A subsidiary of Landsbanki, Icesave, which operated in the UK and the Netherlands, was declared insolvent, putting the savings of thousands of UK and Dutch customers at risk. It also transpired that over 70 local authorities in the UK held more than £550 million of cash in Icelandic banks. In response to statements that the accounts of UK depositors would not be guaranteed, the British governments seized assets of the banks and of the Icelandic government.
On 28 October 2008, Iceland's central bank raised its interest rate to 18% to fight inflation.
Following negotiations underway with the IMF since October, a package of $4.6bn was finally agreed on 19 November, with the IMF loaning $2.1bn and another $2.5bn of loans and currency swaps from Norway, Sweden, Finland and Denmark. In addition, Poland has offered to lend $200M and the Faroe Islands
have offered 300M Danish krone
r ($50M, about 3% of Faroese GDP). The Icelandic government also reported that Russia has offered $300M. The next day, Germany, the Netherlands and the United Kingdom announced a joint loan of $6.3bn (€5bn), related to the deposit insurance dispute.
20th century
Animal husbandry was a major livelihood. Wide areas were used for grazing and scattered meadows were used for haymaking.The Industrial Revolution
Industrial Revolution
The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...
started in Iceland at the beginning of the 20th century.
At the same time diversified significantly. The developments in the areas of fisheries
Fishery
Generally, a fishery is an entity engaged in raising or harvesting fish which is determined by some authority to be a fishery. According to the FAO, a fishery is typically defined in terms of the "people involved, species or type of fish, area of water or seabed, method of fishing, class of boats,...
, manufacturing
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
and services turned the stagnant agricultural
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
economy into a modern industrial state.
1990s
In 1991, the Independence PartyIndependence Party (Iceland)
The Independence Party is a centre-right political party in Iceland. Liberal conservative and Eurosceptic, it is the second-largest party in the Althing, with sixteen seats. The chairman of the party is Bjarni Benediktsson and vice chairman is Ólöf Nordal....
, led by Davíð Oddsson
Davíð Oddsson
Davíð Oddsson is an Icelandic politician and the longest-serving Prime Minister of Iceland, holding office from 1991 to 2004. He also served as Foreign Minister from 2004 to 2005. Previously, he was Mayor of Reykjavík from 1982 to 1991, and he chaired the board of governors of the Central Bank of...
, formed a coalition government with the Social Democrats
Social Democratic Party (Iceland)
The Social Democratic Party was an Icelandic Political Party based on social-democratic ideas. It was founded in 1916 as the political representation of the trade unions of Iceland....
. This government set in motion market liberalisation policies, privatising a number of small and large companies. At the same time economic stability increased and previously chronic inflation was drastically reduced. In 1995, the Independence Party formed a coalition government with the Progressive Party
Progressive Party (Iceland)
The Progressive Party is an agrarian, liberal and centrist party in Iceland. The party is a member of the Liberal International. Current chairman of the party is Sigmundur Davíð Gunnlaugsson. He was elected on January 18, 2009. His predecessor was Valgerður Sverrisdóttir, who only served as...
. This government continued with the free-market policies, privatising two commercial banks and the state-owned telecom Síminn
Síminn
Síminn, previously named Landssíminn, is an Icelandic telecommunications company. It was acquired by Exista in 2008.-History:Telecommunications play a vital role in Iceland. Although the country's population is relatively small , its penetration rates for network-related products and services are...
. Corporate incomes tax was reduced to 18% (from around 50% at the beginning of the decade), inheritance tax was greatly reduced and the net wealth tax abolished.
"Nordic Tiger" was a term used to refer to the period of economic prosperity in Iceland that began in the post-Cold-War 1990s.
Icelandic financial crisis
The "Nordic Tiger" period ended in a national financial crisis in 2008, when the country's major banks failed and were taken over by the country's government.The Icelandic Central Bank
Central Bank of Iceland
The Central Bank of Iceland is the central bank or reserve bank of Iceland. It has served in this capacity since 1961, when it was created by an act of the Alþingi out of the central banking department of Landsbanki Íslands, which had had the sole right of note issuance since 1927 and had...
approached the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
in March 2008 for assistance to support its currency as confidence in its heavily-indebted banking system began to ebb away.
Following sharp inflation in the Icelandic króna during 2008, the three major banks in Iceland, Glitnir
Glitnir (bank)
Glitnir was an international Icelandic bank. It was created by the state-directed merger of the country's three privately held banks - Alþýðubanki , Verzlunarbanki and Iðnaðarbanki - and one failing publicly held bank - Útvegsbanki - to form Íslandsbanki in 1990...
, Landsbanki
Landsbanki
Landsbanki, also commonly known as Landsbankinn in Iceland, is a private Icelandic bank with international operations...
and Kaupthing
Kaupthing Bank
Kaupthing Bank was an international Icelandic bank, headquartered in Reykjavík, Iceland. It was formed by the merger of Kaupthing and Búnaðarbanki Íslands in 2003 and was the largest bank in Iceland....
were placed under government control. A subsidiary of Landsbanki, Icesave, which operated in the UK and the Netherlands, was declared insolvent, putting the savings of thousands of UK and Dutch customers at risk. It also transpired that over 70 local authorities in the UK held more than £550 million of cash in Icelandic banks. In response to statements that the accounts of UK depositors would not be guaranteed, the British governments seized assets of the banks and of the Icelandic government.
On 28 October 2008, Iceland's central bank raised its interest rate to 18% to fight inflation.
Following negotiations underway with the IMF since October, a package of $4.6bn was finally agreed on 19 November, with the IMF loaning $2.1bn and another $2.5bn of loans and currency swaps from Norway, Sweden, Finland and Denmark. In addition, Poland has offered to lend $200M and the Faroe Islands
Faroe Islands
The Faroe Islands are an island group situated between the Norwegian Sea and the North Atlantic Ocean, approximately halfway between Scotland and Iceland. The Faroe Islands are a self-governing territory within the Kingdom of Denmark, along with Denmark proper and Greenland...
have offered 300M Danish krone
Danish krone
The krone is the official currency of the Kingdom of Denmark consisting of Denmark, the Faroe Islands and Greenland. It is subdivided into 100 øre...
r ($50M, about 3% of Faroese GDP). The Icelandic government also reported that Russia has offered $300M. The next day, Germany, the Netherlands and the United Kingdom announced a joint loan of $6.3bn (€5bn), related to the deposit insurance dispute.