Abstract of the 8th International Conference on Future of Social Sciences
Year: 2025
DOI:
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From Collapse to Comeback: The Function of Policy and Tourism in Iceland’s Economic Revival After 2008
Dr. Stefan Gunnlaugsson
ABSTRACT:
Iceland’s post-financial crisis recovery offers a striking case study on how focused government actions and flexible economic policies could enable national rebirth. The fast expansion of the travel industry, which became clear as the main engine of economic development, was key to this recovery. The notable devaluation of the Icelandic króna raised the nation’s price competitiveness, therefore drawing a flood of foreign tourists. The repercussions of the extreme macroeconomic shock were much reduced by the tourist explosion. Structural flaws like too high debt, speculative foreign investments, and inadequate regulatory control essentially caused the crisis itself. Iceland’s three main banks sank under the weight of unsustainable foreign debt and illiquid markets as world financial conditions deteriorated. The following economic crisis comprised a dramatic depreciation of the currency, high inflation, a GDP contraction, and growing unemployment. The Icelandic government responded with a set of firm legislative actions. While the adoption of capital restrictions helped to stop capital flight and stabilize the currency rate, banking reforms and fiscal restructuring set the stage for recovery. Unlike other crisis-torn nations that embraced severe austerity, Iceland gave domestic financial stability top priority by letting its banks fail on overseas liabilities. This approach, together with the growth in tourism, allowed for a faster and more strong comeback. The example of Iceland emphasizes the need of policy adaptability, sectoral resilience, and exchange rate dynamics in reaching economic stabilization. Particularly on the strategic function of sectoral development in absorbing shocks and restoring macroeconomic balance, it provides insightful analysis for small, open economies negotiating financial crises.
keywords: Economic Recovery, Iceland; Banking Crisis, Tourism-Led Growth, Capital Controls, Small Open Economies