The armistice ending World War I took effect on 11 November 1918. This undeniably joyous event was followed by a deep economic recession. In autumn 1919 came the Great Crash, when the price of Iceland’s most important export product – salted herring – collapsed. As the winter advanced, Iceland became virtually unable to sell its fish. Foreign exchange revenues stopped flowing into the country. It was in late summer 1920, when the Prime Minister of Iceland was in Copenhagen intending to pay some outstanding debts, that Danish banks refused to accept the proffered mail order cheque issued by Íslandsbanki, which functioned at the time as Iceland’s central bank. Iceland had no foreign currency and had to ration goods the following winter. The economy took a nosedive – one that turned out blessedly short-lived. The years to follow brought major improvements, until the Great Depression in the 1930s. But that is yet another story. Honoured guests: American author and satirist Mark Twain is quoted as saying “History doesn’t repeat itself, but it often rhymes” – just like a good Icelandic quatrain. Now, a century after achieving sovereignty, we Icelanders are facing many of the same challenges as in autumn 1918. But with one major difference: in 1918 the country was destitute and unprepared – with the authority of a sovereign but without social infrastructure such as a healthcare system. Today we are in a vastly different position.
Fiscal policy followed a cautious line during 2010, aiming to keep budget deficit and public debt in check. Budget deficit until November of this year was 23.1 billion Lekë, marking a reduction of 64%, year-on-year. Reduction of the budget deficit by 4 percentage points of the GDP during 2010 demonstrated a fiscal consolidation both in public revenues, which increased by 9.6% until November, and budget spending reduced by 4.8% during the same period. In particular, budget deficit reduction and public borrowing control in domestic financial market contributed to improved banking system liquidity and reduced interest rates in the financial market. Continuation of this tendency during 2011 would be a welcomed development for the Albanian economy. The Bank of Albania deems that the philosophy of caution pursued in 2010 in budget expenditures and public borrowing should be present for the current year as well. Foreign demand continued to support economic growth even during the third and fourth quarters. January – November 2010 recorded a narrowing of the trade deficit by about 9.2% in annual terms, which came as a result of growth in exports by about 58%. On the other hand, imports marked a more moderate growth – around 6.4 per cent – during the first eleven months. Improvement of trade deficit was favoured by an underestimating tendency of the exchange rate, moderate growth of domestic demand as well as climate and global market structures supporting Albanian exports.