Iceland did not bail out its banks. Instead it brought charges against many involved. The banks were nationalized. The bank failures forced Iceland to borrow $4.6 billion from the IMF. In the first year after the crash, the economy shrank but since then it has been growing. Iceland's currency, the Krona, shrank by 80 per cent against the Euro. This caused severe hardship as many goods are imported. However, Iceland completed its 33 month economic program in August a year ago. The government imposed capital controls, but these will probably remain until next year.
Iceland's recovery program has been praised by both Paul Krugman, the Nobel laureate economist, and the International Monetary Fund in spite of its unorthodox policies. Iceland even managed to get Hollywood t
o help out in the recovery. The government is shifting its economic focus from banking, the area that caused the economic disaster, to more traditional pursuits such as fishing and tourism. But it is also seeking out new areas to develop such as movie production. Margret Reykdal,
general manager of a movie production company, said that the film industry was having a positive effect on Iceland's economy. She said:
“Our projects alone will bring a total revenue stream of close to 3 billion kronur ($24 million), which then has a multiplying effect within the economy.”
Although Iceland has only 320,000 people it has over 7,000 companies classified as being in the creative arts. Agust Einarsson
, an economics professor, said
:“I wouldn’t be surprised if creative industries will become the largest contributor to Iceland ’s gross domestic product within the next 15 to 20 years. Within that time, we could see that creative industries could account for as much as 30 percent of national output.”
The local movie production company Truenorth produced Ben Stiller's "The Secret Life of Walter Mitty," and "Oblivion", the latter with Tom Cruise as a star.
Movie production provides many spin-off benefits such as construction of sets and renting of hotel accommodation. The government subsidizes production by reimbursing 20% of costs. Einarsson claims the government gets back about 5 kronur in tax revenue for every 1 krona it pays as a subsidy.
Prime Minister Johanna Sigurdardottir predicts that next year the budget deficit will nearly be gone. The IMF predicted in April that the economy will grow by 2.4% this year. In contrast the IMF estimate is that the euro zone will contract by .3%. Iceland's deficit in 2013 is expected to be about 0.1% of GDP.
Earlier, Iceland was quite anxious
to join the European Union but now the central bank has suggested that Iceland should move slowly on the plans that were started back in 2010. If joining the EU were put to a referendum, it would probably fail. Iceland does not want to end up in the situation of Greece or Spain. It has suffered enough and recovered without joining the EU.