Nordic Journal of Political Economy Volume 40 2015 Article 1 Six myths and few facts, Recovery of the Icelandic economy post October 2008 Þórólfur Matthíasson * * Þórólfur Matthíasson, Professor of Economics, Department of Economics, University of Iceland. Oddi v/Sturlugotu, Reykjavik, IS-101, +354 525 4530,
[email protected] This article can be downloaded from: http://www.nopecjournal.org/NOPEC_2015_a1.pdf Other articles from the Nordic Journal of Political Economy can be found at: http://www.nopecjournal.org 1 Þórólfur Matthíasson Þórólfur Matthíasson * Six myths and few facts, Recovery of the Icelandic economy post October 2008 Abstract The relative success of the Icelandic road to recovery in the wake of the 2008 Financial Crisis has been a source of some myth-making. This paper discusses to which extent Iceland refused to bail out bankers and sheltered the sovereign from financial losses. I also argue that Iceland responded to the crisis by Keynesian expansionary policy rather than austerity. Furthermore, I argue that the debt-relief program that the government initiated also was a key factor in cushioning the effect of the collapse of the Icelandic financial system. Keywords: Icelandic financial crash, recovery policy, IceSave, boom-bust JEL classification: E32, N14, N24 *Acknowledgements: I am indebted to Yanis Varoufakis and Nikos Theokarakis of the Univeristy of Athens for advise and help. I am also in debt to Thorvaldur Gylfason, Sigrun Davidsdottir and Jon Baldvin Hannibalsson for comments and advise. Remaining errors are the authors. Six myths and few facts, Recovery of the Icelandic economy post October 2008 2 1. Introduction Seen from Europe, Iceland has always been far away.