Economic rejuvenation in Iceland

At long last. I have yearned to see Iceland since I was a little boy and my dream just came true. In the fifth grade, we learned that Iceland and Greenland were so named to dissuade and persuade travelers respectively. Iceland is very green it turns out, while Greenland is very icy. Since that time Iceland has also been of particular interest to me for its important role in the 2008 Great Recession financial crisis and subsequent turn-around. I’ve flown over it at least 100 times and last week was finally able to set foot on its majestic shores.
My impression as a tourist? It’s beautiful. It’s mysterious. It’s amazing. I only had two days and got just a small taste for the country but I’ve already begun planning my return. My impression as an economist is as follows.
In between covering the recent developments in Brexit in London, I had a 48-hour gap of time available and decided it’s now or never. I’ve written about how Iceland is one of the go-to examples for how messed up the rating agencies and their policies were a decade ago. They had all the incentives to ignore economic warning signs and this made their advice toxic for investors during the 2008 economic downturn. Iceland was able to attract deposits globally by paying out high returns which its banks, in turn, invested in risky investments. When those investments tanked and the flow of cheap money began to slow, runs on banks commenced and many Icelandic banks collapsed. What has happened since?
Following the Great Recession, the country entered into an International Monetary Fund (IMF) bail-out scheme meant to bail out not Iceland itself, but the investors in Icelandic banks, citizens of the countries that most contribute to the IMF. Some lost a lot while many recovered most of their investments. Iceland was successful in implementing banking regulations while pivoting away from risky financial practices. Tourism jumped over 400% in the last decade as the country aggressively marketed its natural wonders. Over a quarter of Iceland’s population now relies on the revenue from tourism. That revenue is then spent in the country adding to total GDP. Over 70% of GDP comes from consumer spending. This makes Iceland’s economy on par with countries such as Turkey and the United States. Having its own currency and monetary policy may be a mixed blessing, making its economy vulnerable. Iceland has a promising future and it will be interesting to watch going forward.
While Iceland has moved on since 2008 and is on an upward trajectory, the rest of the world continues to be caught up in uncertainty, not least of which are its closest neighbors. The United States and the United Kingdom are experiencing a particular bout of uncertainty as the U.S. House of Representatives moved Monday to build a case for impeachment against U.S. President Donald Trump. Right in time for election season, I’ve said that the impeachment will end up actually helping Trump and aid in guaranteeing his re-election in 2020. The vote to impeach Trump barely passed in the House with a vote on party lines, signaling this will be a purely partisan effort to get rid of Trump and therefore is destined to fail in a divided Senate.
Across the pond, the U.K. goes to the ballot box again. Boris Johnson’s gamble to consolidate support will also backfire I predict. While Labour may lose votes overall, so too will the Conservatives, with the Liberal Democrats and the Brexit Party picking off seats from the two major parties. This may end up in Brexit being scrapped altogether - not that a real Brexit proposal even exists as it is. In short, uncertainty to reign over the near-term. #VisitIceland.