This is the question that I address in my latest paper which was recently published online in the Journal of European Political Science (26 October 2012).
The article identifies a number of fundamental flaws concerning the Icelandic government's economic handling and administrative working practices, which contributed to the scale of the 2008 crash. At the same time, it argues that the authorities altogether failed to take account of the risk associated with the country's small size during the Icelandic ‘outvasion’. It claims that small-state studies need to move back to the basics and consider the original small-states literature, such as the small domestic market, the use of a small currency and the weaknesses associated with a small public administration, in order to fully understand the reasons for the Icelandic economic meltdown. A small state needs to acknowledge its limitations and take appropriate measures to compensate for them.
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