Iceland: After the fall

What comes to mind when you think about Iceland? Until recently, chances are the island conjured images of puffins or geysers or maybe Björk – or, if you’re a history buff, Ronald Reagan plotting a nuclear-free world with Mikhail Gorbachev. Today, alas, nostalgic thoughts have been crowded out by the grim reality of the financial meltdown: no country suffered comparably severe damage. Iceland’s three main financial institutions, accounting for 85 percent of the banking system, crashed within a single week in October 2008. All three (along with the government that had encouraged their forays into the Himalayas of global finance) claimed they were merely pawns caught in Wall Street’s nefarious games. But the truth is more sobering. For this crisis has exposed the fundamental weakness of Iceland’s economic and political cultures, which are hobbled by institutions more akin to those of the Third World than the First.