To Hell and Back

Earlier this week, I was in Iceland, a country famous for confounding expectations.

Last October Iceland became the smallest country in history to qualify for the football (soccer) World Cup, and they did it with a manager who also works as a dentist.

Over the past decade, Iceland has been in the news for all the wrong reasons. Fine seafood, Norse mythology and Bjork have been replaced by the story of the 2008 financial crisis that sunk the country’s three biggest banks.

For a country which is home to less than 350,000 people, making it the 180th biggest on earth, (behind Belize but ahead of Barbados), the impact the crisis had was catastrophic and it isn’t hyperbolic to say that Iceland’s entire economy was lucky to make it into 2009 still standing. Vast wealth was lost, jobs too, but the country survived and now it’s making a comeback.

While there, I could see that the country is doing much more than finding its feet again. It’s booming, with tourism driving the economy back into positive territory. Debts have been repaid, capital controls lifted and the capital markets are serving a function once again. Given where the economy was a decade ago, its recovery has been remarkable.


As the world’s financial system ground to a halt in 2008, one of the many knock-on effects was that short term lending dried up, sending Iceland’s big three banks into insolvency, falling into a capital shortfall so large that even the Icelandic government refused to save them. The Icelandic stock market, burdened by bloated financial stocks, plummeted, losing 95% of its value.

The government underwrote Icelandic losses but had to borrow nearly $6 billion from the IMF, Nordic neighbours and others to do so. As a result, Iceland’s banking sector imploded, and its credit rating was slashed. The entire economy contracted and huge job losses were seen across the services sector, as well as in construction and tourism.

A massive collapse in the value of the Krona followed. In order to stop a full run, as international and national investors sought to pull their money out of Krona, the government placed controls on the ability of investors to convert and froze offshore holdings of krona-denominated assets, some 40% of GDP, in an attempt to prop up the sinking currency.

Capital controls bought some stability to the currency, but drastic measures were required to save the economy, with tax hikes, rate rises (reaching 18%) and huge cuts on spending. From peak to trough, the Krona dropped 70%, an enormous collapse, but one that, slowly, began to attract foreign investment and, most importantly, tourists. By being brave and acting fast, the Icelandic government, assisted by international regulators, began to build a country once again.


Since those dark days, Iceland’s economy, including its banking sector, has been rebuilt. The financial sector has been restructured and the economy has thrived following the return of national and international investment and a huge, somewhat surprising, surge in tourism.

Ironically, given the explosive catastrophe that caused the chaos, it was the eruption of the volcano, Eyjafjallajökull, in 2010, that provided Iceland’s lifeline. Ash from the super-volcano brought air travel across the world to a standstill which, whilst hugely disruptive, put the Nordic island firmly on the map. Tourism has surged ever since.

Expecting over 2 million visitors this year (7 times its population, the equivalent of 450 million people visiting Britain!), Iceland’s new coalition government has increased its infrastructure spend. One fear is that this huge boom is leading to a potential overheating of the sector, which is remarkable given where the economy was before Eyjafjallajökull went off.


A decade on, one of the countries worst hit by the financial crisis looks in fine health. Iceland’s IMF loan was repaid early, GDP rose by 7% in 2016, and a huge emphasis on renewable energy has boosted its international standing even further. As the economy has recovered, capital restrictions have been eased, with the last of these controls lifted last summer.

To cap it all, Iceland returned to the bond market last year when its first sale of debt in three years draw exceedingly high demand from international investors. €4bn of orders were placed for a €500m bond, reflecting increasing confidence and giving its recovery a stamp of approval.

Following the repealing of capital controls, 2017 was the year when Iceland’s recovery was complete and the world’s financial system felt at ease with its place at the top table once again.

Origin and Iceland

We spent two days meeting the local banks and the government, and while there I got the sense that this was a country that was very optimistic about its future, with the events of 2008 an increasingly fading memory. At Origin, we already have one bank on board as a borrower, and we’re hoping to secure a couple more key partnerships as we move through Q2 of this year.

The fact that key players in the Icelandic economy are open to a proposition like ours is testament to the returning strength of the country’s financial sector. It’s been quite a decade, but it’s great to see this defiant, innovative Nordic powerhouse back and punching well above its weight once again. It’s not just their football team that continues to confound expectations.