Why this was such a big deal in Iceland
To understand why people were so mad, you need to understand just how bad things had gotten in 2009.
In the early 2000s, Iceland had built up a massive financial industry fairly rapidly. It did so, however, on totally unsustainable bases — promising depositors high interest rates while at the same time spending a lot of money purchasing new assets. This was a bubble set to pop, and so it did in 2008 when the global financial system it depended on began falling apart.
The effect on Iceland was dramatic, as the
Washington Post's Matt O'Brien explains:
Iceland's government couldn't afford to bail out its banks that had gotten so much bigger than its economy. The only choice was to let them go under. In other words, Iceland's banks were too-big-not-to-fail. That was a lot easier, though, when letting the banks fail meant letting foreigners lose their money. Iceland's government, you see,
guaranteed its own people's deposits, but no one else's.
But now it was Iceland's government that needed a bailout. It needed the money to protect domestic deposits, cushion the economy's free fall, and keep their currency, the krona, from crashing much more. In all, Iceland got
$4.6 billion, with $2.1 billion of that coming from the IMF and the other $2.5 billion from its Scandinavian neighbors.
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