Following the collapse of the banking system in October 2008, the Icelandic authorities attempted to restore confidence in the country’s institutions, improve their functioning and gradually improve the country’s credit rating. The authorities took ownership of an International Monetary Fund-sponsored economic programme that managed to turn the macroeconomic development around when, following a trough in the summer of 2010, an economic expansion started that has continued ever since. They applied for membership in the European Union in order to show their commitment to be part of the international economic community and to have a lender of last resort in the European Central Bank in future crises. The causes of the collapse were investigated and many bankers were prosecuted. Finally, financial regulations were made stricter and the structures of the Central Bank and the supervisory authority were changed for the better. The net effect was to lower the credit default swap rate on the government’s debt, gain access to capital markets and make the Iceland story one of resurrection rather than only hubris and collapse.
The author is an external member of the Monetary Policy Committee of the Central Bank of Iceland. The views reflected in this chapter are his own and do not reflect the views of other members of the committee. The author is grateful to GuÐrún Johnsen, Thorvaldur Gylfason, Thórarinn G. Pétursson and Franek Rozwadowski for comments on the chapter.
Zoega, G. (2018), "Restoring Confidence in the Aftermath of Iceland’s Financial Crisis", Sigurjonsson, T.O., Schwarzkopf, D.L. and Bryant, M. (Ed.) The Return of Trust? Institutions and the Public after the Icelandic Financial Crisis, Emerald Publishing Limited, pp. 3-28. https://doi.org/10.1108/978-1-78743-347-220181001Download as .RIS
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