European Economy News. No 15, October 2009

Iceland’s spectacular and sudden economic collapse was the result of macroeconomic imbalances which built-up over time. These were driven by a booming economy and aggressive expansion by Icelandic banks. Iceland’s highly leveraged economy was vulnerable to adverse external shocks such as the global financial turmoil. Ultimately, the IMF had to
step in to rescue it. The country has stabilised, and has several long-term advantages. Moreover, membership in the EU and adoption of the euro – if they proceed – could provide greater stability. Nonetheless, the future of
this remote island nation remains uncertain.

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