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Country Specific Information: Iceland

May 15, 2011 Comments off

Country Specific Information: Iceland
Source: U.S. Department of State

May 10, 2011

COUNTRY DESCRIPTION: Iceland suffered an economic crisis beginning in October 2008 and was a focal point in international news following the April 2010 eruption of the Eyjafjallajokull volcano. Iceland remains a highly developed country with a stable democracy. The national language is Icelandic, but English is widely spoken, especially in the capital city of Reykjavik. Tourist facilities in Iceland are well developed and widely available. Read the Department of State Background Notes on Iceland for additional information.

Categories: Iceland, international relations, transportation and travel, U.S. Department of State

Economic Effects of Banking Crises: A Bit of Evidence from Iceland and Ireland

April 27, 2011 Comments off

Economic Effects of Banking Crises: A Bit of Evidence from Iceland and Ireland
Source: Federal Reserve Bank of Atlanta

Iceland had a shorter, less severe recession after its banking crises than did Ireland. Iceland’s flexible exchange rate and rapid resolution of its banking crisis without bailing out creditors are likely important explanations.

  • Iceland and Ireland responded to the banking crises in their countries in quite different ways.
  • While the countries are similar in many respects, they have some significant differences, the most prominent being their exchange-rate regimes.
  • Iceland’s combination of a flexible exchange rate and a policy of closing its failed banks appears to have served the country well in the aftermath of the financial crisis.

Banking crises in Iceland and Ireland came to a head at the height of the financial crisis in September and October 2008. These countries took quite different approaches in dealing with these difficulties. How differently have their economies responded?

Ireland and Iceland are small island countries with many similarities, including similar incomes for their residents. In 2010, Iceland’s income per person was $36,700 while Ireland’s was $37,600. By international standards, these incomes are relatively high: Ireland ranks 27th and Iceland 29th of 229 countries. (By comparison, the U.S. income per person was $47,400 in 2010, or 10th of 229.) Both countries have relatively small populations, although Ireland’s population of 4.7 million is more than 15 times greater than Iceland’s population of a little more than 311,000.

Iceland and Ireland are similar in another respect. Banks in both economies lost funding in September and October 2008 as private lenders became concerned about the value of the banks’ assets and the likelihood of loans being paid. The governments’ responses to these losses of private lending support were quite different, though, and these responses had important effects on the countries’ economies.

Categories: banks and banking, business and economics, Federal Reserve Bank of Atlanta, Iceland, Ireland

Background Note: Iceland

March 24, 2011 Comments off

Background Note: Iceland
Source: U.S. Department of State

Official Name: Republic of Iceland

Iceland maintains diplomatic and commercial relations with practically all nations, but its ties with other Nordic states, with the United States, and with the other NATO member states are particularly close. Icelanders remain especially proud of the role Iceland played in hosting the historic 1986 summit in Reykjavik between President Ronald Reagan and Soviet leader Mikhail Gorbachev, which set the stage for the end of the Cold War.

Iceland has greatly increased its international profile since the early 1990s. From the mid-1990s until 2007, Iceland opened a number of missions overseas, including in all five permanent member countries of the UN Security Council in anticipation of its (ultimately unsuccessful) bid for a rotating seat on the UN Security Council in 2009-2010. The buildup also included missions to the Council of Europe in Strasbourg and to the Organization for Security and Cooperation in Vienna. In 1998, it bolstered its delegation to NATO, assigning a permanent representative to the military committee for the first time ever. However, in the wake of the economic crisis in fall 2008, the Ministry for Foreign Affairs announced budget cuts resulting in the closure of four overseas missions. Iceland currently has 20 missions in 16 countries.

European Union (EU) membership was one of the top campaign issues in the 2009 parliamentary elections. The parliament voted in favor of applying for EU membership in July 2009, and Iceland was granted candidate status on June 17, 2010. Formal accession negotiations began at an intergovernmental conference in Brussels on July 27, 2010 and are expected to last several years. After the negotiations are concluded, the Icelandic people will determine by national referendum whether the country joins the EU. Icelanders also have a strong emotional bond with the Baltic states, and Iceland prides itself on being the first country to have recognized these countries’ claim for independence in 1991.

Categories: Iceland, international relations, U.S. Department of State
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