Iceland has been called the Island of the Sagas, and recently there has been no shortage of sagas.
When the volcanic eruption started in Eyjafjallajokull last April, severely disrupting international air traffic, the world's attention turned to Iceland. It was the second time in only 18 months that the country made the front pages of the international press, the first being the collapse of the private banking system during the global credit crisis of October 2008.
While obviously very different in nature, both events demonstrate one country can have a direct impact on others. In a globalised world, we are all in the same boat.
Privatised banks in Iceland made use of cheap international loans to grow out of proportion to the small Icelandic economy and they collapsed when the financial crisis began to weigh heavily on them.
Enormous cost
The cost of the crisis became enormous for Icelanders, domestic and foreign savers, and foreign creditors. Developments after the collapse of the Icelandic banking system in October 2008 show the problems aren't limited to Iceland.
Iceland has had to deal with a collapse of its banking system and its currency simultaneously, a man-made economic disaster, historically unprecedented. Its task in the last 18 months has been simple: to find out what happened, to clean up the mess and make sure that such an economic disaster never strikes again. On all three, Iceland has made substantial progress. Recently, a special investigative committee delivered a report explaining the events that led to the financial crisis.
At the same time, the justice system has been reinforced. A special prosecutor has the task to investigate and prosecute those suspected of breaking the law in the lead-up to the financial crisis.
The banking system has been restructured with a revised legislative framework. The surveillance of the financial system has been enhanced, making for a sounder basis and more transparency.
The road to full economic recovery is long and the journey will require further sacrifices as we bring the budget back into balance by 2013. Nonetheless, the economic fundamentals are strong as our real assets remain intact despite the financial turmoil. Economic growth is expected to resume later this year.
Whether we are faced with a natural disaster or financial crisis, central to a successful response is international cooperation and solidarity. The solution isn't to be found in isolationism or denial. With this in mind, Iceland has applied to join the European Union. Hopefully that application will be formally accepted this summer by the European Council. EU membership would reinforce the foundation that Iceland's economic recovery is built on.
Johanna Sigurdardottir is the Prime Minister of Iceland. The opinions expressed are her own.
