Icelandic Crisis Research Articles

Unorthodox public leadership: the case study of an atypical approach to crisis in Iceland

PurposeThis paper aims to present the case of Jón Gnarr's leadership as he served as a mayor of Reykjavík, the capital of Iceland. The authors’ view is that his leadership style illustrates a case study of how a “new” leadership style can emerge in times of crisis. Iceland was significantly affected by the financial crisis in 2008, which led to political and economic crises, which were fuelled by the public's anger and lack of trust. In 2010, Jón Gnarr and his new party, the Best Party, were unexpectedly elected. Before he became known as an unorthodox leader, he worked as a comedian. However, he influenced the discourse in politics in the country and raised trust in the system again while empowering the public managers and simplifying the system while downsizing it. This paper explores and sheds light on the leadership abilities that crises can birth.Design/methodology/approachThis research uses qualitative methods. Seven in-depth interviews were conducted, and the interviewees included Jón Gnarr, three key political leaders who were in office at that time and three executive-level leaders from the city administration.FindingsEvidence suggests that Jón Gnarr and his political party became a part of the political arena due to extreme social and economic factors, which might indicate the factors that can give rise to an unorthodox leader. At the same time, the research portrays the image of a leader that closely matches the theories of authentic leadership, and his leadership style at the time made a lasting impact. When Gnarr stepped into the role of mayor of Reykjavík, he used novel tactics. His political discourse was different; his manner with the public as well as within the system was different. When he became mayor, he demonstrated trust, respect and care as his underlying values. His unorthodox political behaviour appears to have empowered public officials. Thus, gradually, he inspired his followers to change their own communication style. He also addressed traditional political issues such as downsizing, mergers and financial undertakings.Research limitations/implicationsIts limitation is that it is difficult to generalize based on one case.Practical implicationsThe case can shed a light on how unorthodox leadership style can unlock the potential of empowering and trust in a traditional political system. Leaders who dare to be different can raise awareness of those who work within the system as well as the public.Originality/valueThis paper contributes to the understanding of authentic and unconventional leadership as an efficient vehicle in unusual circumstances in a public leadership position.

Paracetamol poisoning: a population-based study from Iceland

Objective To examine the incidence and severity of paracetamol poisoning in a population-based cohort in Iceland. A previous study showed a decrease in the incidence during a financial crisis in Iceland, by approximately half (16/100,000 annually). The aims of the study were to assess the incidence and nature of paracetamol poisoning after economic recovery in Iceland and to compare intentional and accidental poisoning. Methods Paracetamol serum concentrations were used to identify patients in this retrospective study from 2010–2017. A search was undertaken in laboratory databases for patients with serum paracetamol concentrations, which were grouped by <66 µmol/L (below detection limit) and ≥66 µmol/L. Medical records were reviewed and relevant laboratory and clinical information obtained to determine whether paracetamol poisoning had occurred. Results Altogether 542 cases of paracetamol poisoning were identified. The mean annual incidence was 27/100,000 (range 22–33). Intentional poisoning was observed in 437/542 (81%) cases, most frequently among females 16–25 years of age. Males ≥65 years were more likely to overdose by accident, which was associated with worse outcomes. Twenty-five (4.6%) patients developed severe paracetamol-induced liver injury and coagulopathy. Overall, six (1.1%) cases were fatal in which paracetamol contributed to the cause of death, with accidental poisoning found in 67% (4/6). Conclusions The incidence of paracetamol poisoning has increased in recent years associated with economic recovery in Iceland. Most patients had favourable outcomes. Intentional overdose was most common in young females, whereas accidental overdose was more common in older males and more frequently associated with a fatal outcome.

Crises and capital controls in small open economies: a stock–flow consistent approach

This paper attempts to explain the role of capital inflows in creating economic booms and busts in a small open economy with sovereign currency. We develop a stock–flow consistent (SFC) model for a small open economy while relying on the experience of the Icelandic crisis. We demonstrate the destabilising effects of capital inflows on the economy by allowing for a sudden stop, and also discuss the role of capital controls as a policy response in the event of a crisis due to sudden stops. Finally, we discuss the policy implications of our results in order to tackle the destabilising effects associated with financial flows in a small economy.

Crises and capital controls in small open economies: a stock–flow consistent approach*

This paper attempts to explain the role of capital inflows in creating economic booms and busts in a small open economy with sovereign currency. We develop a stock–flow consistent (SFC) model for a small open economy while relying on the experience of the Icelandic crisis. We demonstrate the destabilising effects of capital inflows on the economy by allowing for a sudden stop, and also discuss the role of capital controls as a policy response in the event of a crisis due to sudden stops. Finally, we discuss the policy implications of our results in order to tackle the destabilising effects associated with financial flows in a small economy.

From Resurrection and New Dawn to the Pirate Party: Political Party Names as Symbolizing Recent Transformations in the Political Field in Iceland

ABSTRACT2008 saw the beginning of a massive financial crisis in Iceland, marked by the collapse of the banking system, the failure of state pension funds, and months of political upheaval. Angry and bewildered Icelanders, newly aware that their image of themselves as exceptional and egalitarian new age Vikings was hollow, and that the pre-crash rhetoric of ‘prosperity for all’ had only ever been ‘prosperity for the very few’, sought to reconfigure the political field. New parties, with new names that signified a very different conceptualization of Iceland and Icelanders, emerged. In this paper we examine the move in Iceland from a handful of parties which drew on a common symbolization of Iceland as a classless society rooted in land and shared history, to the contemporary plethora of parties which promise, for example, a ‘bright future’, or style themselves as ‘pirates’ who will re-start Iceland.

Normalization of Questionable Behavior: An Ethical Root of the Financial Crisis in Iceland

In this paper, we explore the 2008 financial crisis in Iceland through the lens of Donaldson’s concept of normalization of questionable behavior. We study the report published by the Special Investigation Commission, an investigation initiated by the Icelandic Parliament near the end of 2008. The report provides a detailed and systematic account of the processes leading up to the crisis. Our aim is to determine the extent to which the behaviors of professionals in the Icelandic financial sector can be explained as a gradual fading of moral concerns to the point that they perceived the sale of high-risk products to unassuming customers for their own short-term benefit to be morally unproblematic. In doing so, we consider both character and circumstance explanations of moral misbehavior. We expand on Donaldson’s initial description of normalization of questionable behavior by applying the concept of moral neutralization, which is defined by criminologists Sykes and Matza as the process of convincing oneself that an option that initially conflicted with one’s own moral beliefs is actually morally acceptable. We find indications that individuals in the Icelandic financial sector did engage in moral neutralization in their attempts to frame their own actions in an acceptable light. In our study, we identify one way of neutralizing away moral dissonance not captured in the original theoretical framework. Icelandic bankers justified their behavior by claiming that they did not break any relevant rules or regulations when they engaged in what were later labeled questionable activities. Our name for this kind of justification is claim of having breached no rule.

Iceland: how social mechanisms drove the financial collapse and why it’s a wicked problem

PurposeThe purpose of this paper is to extend the macro-social marketing approach by detailing a framework to better understand the driving forces of wicked problems.Design/methodology/approachThis is a conceptual paper that uses the financial crisis in Iceland as a demonstrative example to show how social mechanism theory can help social marketers and policy makers overcome complexity and strive for the social transformation they seek.FindingsThis paper suggests the utility of social mechanism theory for understanding wicked problems, how they came to be and how social marketing practices can be applied to resolve market complexities.Research limitations/implicationsSocial marketers need to identify what is driving what, to plan and implement interventions that will lead to the social change desired. This paper presents a framework that guides the analyst through this social change process.Originality/valueThis work provides social marketers with the means to understand the “moving parts” of a wicked problem to identify where an intervention is required to achieve the social change sought.

Molecular epidemiology of HIV-1 in Iceland: Early introductions, transmission dynamics and recent outbreaks among injection drug users

The molecular epidemiology of HIV-1 in Iceland has not been described so far. Detailed analyses of the dynamics of HIV-1 can give insights for prevention of virus spread. The objective of the current study was to characterize the genetic diversity and transmission dynamics of HIV-1 in Iceland. Partial HIV-1 pol (1020bp) sequences were generated from 230 Icelandic samples, representing 77% of all HIV-1 infected individuals reported in the country 1985–2012. Maximum likelihood phylogenies were reconstructed for subtype/CRF assignment and determination of transmission clusters. Timing and demographic growth patterns were determined in BEAST. HIV-1 infection in Iceland was dominated by subtype B (63%, n=145) followed by subtype C (10%, n=23), CRF01_AE (10%, n=22), sub-subtype A1 (7%, n=15) and CRF02_AG (7%, n=15). Trend analysis showed an increase in non-B subtypes/CRFs in Iceland over the study period (p=0.003). The highest proportion of phylogenetic clustering was found among injection drug users (IDUs; 89%), followed by heterosexuals (70%) and men who have sex with men (35%). The time to the most recent common ancestor of the oldest subtype B cluster dated back to 1978 (median estimate, 95% highest posterior density interval: 1974–1981) suggesting an early introduction of HIV-1 into Iceland. A previously reported increase in HIV-1 incidence among IDUs 2009–2011 was revealed to be due to two separate outbreaks. Our study showed that a variety of HIV-1 subtypes and CRFs were prevalent in Iceland 1985–2012, with subtype B being the dominant form both in terms of prevalence and domestic spread. The rapid increase of HIV-1 infections among IDUs following a major economic crisis in Iceland raises questions about casual associations between economic factors, drug use and public health.

Financialisation and financial crisis in Iceland

Financialisation in Iceland should be seen as an evolving process driven by a mixture of global and domestic forces. Responding to fundamental issues underlying macroeconomic imbalances, the authorities introduced policies that proved particularly supportive of financial expansion at a time when cross-border capital movements were rapidly on the rise. Consequently, the rise in financial activity has had profound effects on income distribution and corporate and household behaviour. Following the 2008 financial meltdown, which was triggered by excessive growth of the financial sector, financialisation in Iceland has reversed to a degree, allowing for a shift away from financial-led towards increasingly export-led growth.

Small states in the perfect storm: crisis management and economic credibility in Ireland’s and Iceland’s financial crises

Despite having lived through some of history’s greatest financial and economic crises, the two small open economies of Iceland and Ireland are now enjoying relatively high growth rates and declining unemployment, and are broadly regarded as success stories of effective economic turnarounds. In both countries, policy focused on restoring the confidence of international capital markets, but whereas Icelandic crisis management has compensated the people worst hit by the crisis through socially balanced austerity and debt cancellation, Ireland’s austerity followed a more orthodox, European approach with significant inequality-creating effects. Iceland’s heterodox approach was made possible through capital controls and a devaluation of the currency, while Ireland could neither devalue nor write down bank debt. The article shows how the dependence on international capital markets and the abandonment of independent monetary policy restrict the flexibility small states have previously enjoyed and increase dependence on fortunate developments in the world economy.

Two thorns of experience: financialisation in Iceland and Ireland

We explain the 2008 crisis in Iceland and Ireland with an emphasis on the role financialisation played in destabilising these countries’ economies. The two small open economies share similarities in that both countries had capital inflows before the crisis, ending with a sudden stop. However, the mechanisms of the crisis, which induced the capital flows, the factors that influenced them and their effects on the real economy differed due to differences in currency regimes and the response to the crises. We investigate the link between financialisation and the transmission channels of financialisation on the macroeconomy, using ARDL methodology. Finally, we suggest policy prescriptions to limit the scale and scope of similar crises in the future while highlighting the institutional differences between the two economies.

A Double-Edged Sword: High Interest Rates in Capital Control Regimes

Abstract This paper describes the relationship between central bank interest rates and exchange rates under a capital control regime. Higher interest rates may strengthen the currency by inducing owners of local currency assets not to sell local currency offshore. There is also an effect that goes in the opposite direction: higher interest rates may increase the flow of interest income to foreigners through the current account, making the exchange rate fall. The historical financial crisis in Iceland provides excellent testing grounds for the analysis. Overall, the Icelandic experience does not suggest that cutting interest rates in small steps from a very high level is likely to make a currency depreciate significantly in a capital control regime, but it highlights the importance of effective enforcement of the controls.

The Whole World Is One Atom Station: Laxness, the Cold War, Postcolonialism, and the Economic Crisis in Iceland

INTRODUCTION Until late 2013, on the website and the menu of Islenski barinn in Reykjavik (a trendy cafe in Austurvollur, the site of the Icelandic parliament), one could read of a dramatic episode. (1) On January 22, 2009, a crowd gathered in front of the parliament and demanded the resignation of the government, after the local banks had declared bankruptcy and an agreement to repay the Icesave debt had been signed (Bergmann 2014, 140-6). At one point during the demonstration, as agitation increased and tensions rose, the police used tear gas to disperse the crowd. At the cafe, shocked customers and waiters looked at the scene, until someone opened the door to the demonstrators in order to protect them from the police's actions. After closing time, the staff of Islenski barinn started discussing the events and were struck by one analogy. Icelanders had not witnessed the use of tear gas since March 30, 1949, when a crowd had gathered in the same square to protest against Iceland joining the North Atlantic Treaty Organization (NATO). The people of Islenski barinn thought it seemed like a ghost from the past had returned in the peaceful Icelandic society. The fact that the 2009 Austurvollur episode ended up in a menu, accompanied by a reference to the 1949 events, betokens the parallel shocks such experiences visited upon the Icelandic population. Such a parallel can be better exposed through a literary work by Iceland's Nobel laureate Halldor Laxness and its Cold War and postcolonial implications. Laxness's novel Atomstodin (1948; The Atom Station, 1961) gives a vivid portrait of the starting phase of a network of power relations and economic-ideological positions that arose in postwar Iceland and developed throughout the twentieth century up to the economic crisis that hit the country in 2008. In so doing, the novel strikes the modern reader for its relevance and the similarity between the events it somehow anticipated (such as the protests against Iceland's entrance into NATO, which occurred one year after its publication) and the conditions of Iceland after the economic crisis. In order to discuss this relationship between the novel and the contemporary period, this article will start with the socio-political context in which Atomstodin arose, and then focus on two aspects, namely its nature as a novel of the Cold War and as a postcolonial narrative. Within this context, I will also address Atomstodin's relationship to nationalism and its relevance as a postnational novel. In the final part of the article, these perspectives will be used to inform a reading of Atomstodin in the light of the recent economic crisis in Iceland. ATOMSTODIN AND ITS CONTEXT Atomstodin tells the story of Ugla, a young woman from the north of Iceland. At the beginning of the novel, she has just started working as a maid at the home of member of parliament Bui Arland, where US army personnel and local politicians meet to discuss building an American military base on Icelandic soil. Ugla has made plans for her stay in Reykjavik, as she intends to take harmonium lessons in order to play in her village's church. In reality, one soon understands that her trip has an existential reason. A peculiar organist starts teaching her, but he and Ugla spend most of the time discussing life and philosophy with his friends, among others, two gods, Benjamin atomskald (atomic poet) and Briljantin (Brilliantine), a prostitute named Kleopatra, and a mysterious, self-conscious policeman. After one of these lessons, the policeman and Ugla spend the night together, an episode that results in a pregnancy. Ugla goes home to give birth to a baby girl, but after a while, she returns to Reykjavik, first to Bui Arland (with whom she has a quick affair), later to the organist, and finally to the policeman, who has ended up in jail. However, she decides to wait for him to be released so that they can start a life together. During its early reception, Atomstodin was considered a pamphlet in disguise and (mis)treated as such. …

The Boom and the Bust: Can Theories from Social Psychology and Related Disciplines Account for One Country's Economic Crisis?

The Icelandic economy collapsed dramatically in the fall of 2008, making the country one of the first victims of the sharp economic downturn that hit most of the West. The Icelandic crisis may serve as an especially illuminating case study of the psychology of economic booms and busts. We offer an analysis of the buildup and aftermath of the economic crisis in Iceland using theories and findings from social psychology and related disciplines. During the buildup, at the national level we focus on strong national identity, high levels of trust, and system justification. At the group level, we discuss homogeneity of bank employees, group identity, and organizational culture. At the individual level the focus is on motivated reasoning and cognitive heuristics. During the aftermath at the national level, the primary focus is on collective action and the ascent of women into power. At the individual level we discuss changes in values, and report on a study in which we examined people's perceptions of what caused the crisis and how it relates to political ideology. We conclude by considering several behaviors not accounted for in our analysis and some policy implications that can be gleaned from the analysis.

CUSTOMER TRUST TOWARDS BANKS AND THEIR PERCEPTIONS OF CORRUPTION BEFORE AND AFTER A BANKING CRISIS: THE CASE OF ICELAND

ABSTRACT In October 2008 three of the biggest banks in Iceland went bankrupt along with the biggest savings and loans. The consequences have been dire for the Icelandic economy in general and the banking sector in particular. This applies especially to the banks´ image. Their customer trust was ruined and they were perceived as corrupt. This paper deals with the research question: “What is the relationship between customer trust towards banks and their perceptions of corruption before and after a banking crisis?” Knowing this is important because if there is a relationship between customer trust and their perceptions of corruption, as earlier research might indicate, the former could possibly be restored by changing the latter. The population of interest was the customers of the Icelandic banks. A convenience sample was used. This paper presents the findings on two of the banks´ image attributes; trust and corruption, both before and after the banking crisis in Iceland in October 2008. The surveys were web-based and done in February and March 2007 to 2012. The results indicate that the scores for customer trust towards banks and their perceptions of corruption mirror each other both before and after a banking crisis. Keywords Customer trust; Corruption; Banking sector, Banks, Banking crisis

Was the economic crisis of 2008 good for Icelanders? Impact on health behaviors

This study uses the 2008 economic crisis in Iceland to identify the effects of a macroeconomic downturn on a range of health behaviors. We use longitudinal survey data that include pre- and post-reports from the same individuals on a range of health-compromising and health-promoting behaviors. We find that the crisis led to large and significant reductions in health-compromising behaviors (such as smoking, drinking alcohol or soft drinks, and eating sweets) and certain health-promoting behaviors (consumption of fruits and vegetables), but to increases in other health-promoting behaviors (consumption of fish oil and recommended sleep). The magnitudes of effects for smoking are somewhat larger than what has been found in past research in other contexts, while those for alcohol, fruits, and vegetables are in line with estimates from other studies. Changes in work hours, real income, financial assets, mortgage debt, and mental health, together, explain the effects of the crisis on some behaviors (such as consumption of sweets and fast food), while the effects of the crisis on most other behaviors appear to have operated largely through price increases.

REPAIRING CUSTOMER TRUST FOLLOWING A BANKING CRISIS

ABSTRACT This paper deals with how strongly banks´ perceived repair efforts to influence their trustworthiness and elicit forgiveness following the banking crisis in Iceland in October 2008 relate to their trustworthiness, customer forgiveness and their trust towards them, how strongly trustworthiness relates to both forgiveness and trust and how strongly the two are related. The population of interest was the customers of the Icelandic banks. A convenience sample was used. The research questions are, “How strong is the relationship between the different repair efforts and the dimensions of trustworthiness?”, “How strong is the relationship between the different repair efforts and a) forgiveness and b) trust”, “How strong is the relationship between the different dimensions of trustworthiness and a) forgiveness and b) trust?” and “How strong is the relationship between customer forgiveness and trust?”. The results of the research are that there were strong positive relationships between all the different repair efforts and all the trustworthiness dimensions, all the different repair efforts and forgiveness and trust and also all the trustworthiness dimensions and forgiveness and trust. Keywords Repair efforts; Trustworthiness; Customer forgiveness; Trust; Banks, Banking crisis

The Political Consequences of the Financial and Economic Crisis in Europe: Electoral Punishment and Popular Protest

The Political Consequences of the Financial and Economic Crisis in Europe: Electoral Punishment and Popular Protest

The Global Financial Crisis and Individual Distress: The Role of Subjective Comparisons after the Collapse of the Icelandic Economy

Sociologists have emphasized that abrupt social changes can evoke subjective deprivation that can create subjective injustice and emotional distress. The global economic crisis offers an opportunity to examine this issue. This article builds on relative deprivation theory and proposes that economic crises evoke three subjective comparisons that influence distress: comparisons to 1) past outcomes; 2) the situation of others; and 3) expected future outcomes. Using a national survey obtained during the economic crisis in Iceland, we examine how these comparisons influence subjective injustice and emotional distress (anger and depression). Results indicate that perceived reduction in the standard of living has a more pronounced effect on subjective injustice and anger, 1) when individuals think that the crisis has harmed them more than others; and 2) when they have negative expectations about their future. The study implies that subjective comparisons can moderate the effect of sudden social change on distress.

Policy Performance and Satisfaction with Democracy

In this paper we examine how subjective perception of government’s policy performance affects satisfaction with how democracy works in Iceland. This we base on the argument that the public is aware of and evaluating the governments’ performance when the political system is faced with a major crisis that has been extensively publicly debated and triggered widespread protests. The financial and political crisis in Iceland 2008-09 provides an opportunity to examine if government performance can be seen as a causal factor explaining satisfaction with the democratic process. We take into account two alternative explanations; that satisfaction with how democracy works depends on citizens’ belief in how well the representative system works; and if they are more satisfied when their party is represented in government. Our principal conclusion is that subjective policy performance is the main explanation for citizens’ increased dissatisfaction with democracy during a severe crisis.