Iceland’s Financial Crisis and Arctic Identity Politics

The October 2008 banking collapse in Iceland—at the beginning of the global financial crisis—had profound effects on its relations with the outside world. Under intense domestic political pressure, the coalition government of the Independence Party and the Social Democratic Alliance quickly began to prioritize economic and societal security at the expense of traditional military security. Initially, there was limited understanding for Iceland’s economic plight among its U.S., European, and Nordic allies who—with more than a hint of epicaricacy—saw the crash largely as a self-made disaster. They pointed out that through toothless financial supervision, Icelandic political elites had refused to listen to repeated foreign warnings and continued to promote an unsustainable banking expansion abroad. When Iceland’s main Western partners turned down its requests for emergency aid, the Icelandic government felt compelled to turn, formally, to Russia, asking it for a $5.4 billion loan. The conservative Prime Minister Geir Haarde put it bluntly: “We have not received the kind of support that we were requesting from our friends,” and in such a situation, “one has to look for new friends.” This abrupt call for new loyalties was not only fueled by political despondency; it was also influenced by hedging considerations aimed at opening up alternative non-Western venues in Iceland’s foreign policy to respond to a state of exception without abandoning its basic Western orientation. It was, however, difficult to accomplish such a goal in the absence of deeper political traditions and institutional ties.