Investors Flock To Iceland

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What's going on?

Goldman Sachs is among a number of investors that have bought a stake in the Icelandic bank Arion its a sign of how far Iceland has come since the 2008 global financial crisis hit the island nation hard.

What does this mean?

In the years leading up to 2008, Icelands banks swelled in size with investment from foreigners. The banks reinvested that money in lots of the risky investments that ultimately led to the 2008 financial crisis (like in the movie The Big Short).


When it all came crashing down, Icelandic banks, effectively, went bankrupt. In response, Icelands government took the rare step of blocking money from leaving and entering Iceland. While this angered foreign investors, it bought Iceland time to nurse its banks back to health and, ultimately, limited the damage to Icelands economy. After eight years, those restrictions were lifted last week, and global investment funds have wasted no time in re-entering the country.

Why should I care?

For the markets: Iceland is on a roll.

In the wake of its banking system collapsing, Iceland refocused on its traditional strengths, namely fishing and tourism (as well as some manufacturing). Tourism, in particular, helped the economy grow more than 10% in the most recent quarter.


The bigger picture: The flexibility of being a small and independent country can be very helpful in times of crisis.

Iceland had the benefit of total autonomy as it took actions to save itself. Its a luxury that many other European countries didnt have in the wake of the financial crisis. For example, it would be far more controversial if a country that uses the euro were to restrict money from leaving (a Greek euro is supposed to be worth the same as a German euro). While being the member of a large currency bloc, such as the euro, certainly has some benefits, it also comes at the cost of flexibility that can be useful.

Originally posted as part of the Finimize daily email.

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