"The timing was a little off, but the rest wasn't. Both countries' banks went bust, both got bailed out by the International Monetary Fund, and both did austerity afterward. But despite these similarities, Iceland's recovery has been better than Ireland's. Specifically, its economy is 1 percent bigger than it was before 2008, while Ireland's is still 2 percent smaller. That's more surprising than it sounds since Ireland's crisis was merely catastrophic and Iceland's was completely so. But more than that, Iceland is doing better even though—or, for the most part, because—it did everything you're not supposed to. It let its banks fail, it let its currency collapse, and it implemented capital controls--limits on people taking money out of the financial system--that it's only now getting ready to lift. Not all of it helped, but enough of it did that the question has become how much of a role model Iceland should be for everyone else. And the answer is: It depends!
Iceland might have been the most obvious bubble ever. During the mid-2000s, it went from being an Arctic backwater that specialized in fishing and aluminum smelting to an Arctic backwater that specialized in global finance. Iceland's three biggest banks grew to 10 times the size of their economy by offering people overseas, especially in the Netherlands and Britain, higher interest rates than they could get at home. Then, armed with this cash, Iceland's bankers went on a historically ill-advised buying spree. They bought foreign companies, they bought foreign real estate, they even bought foreign soccer teams. But with it all, they bought the dregs. The problem, in other words, was that Iceland's banks were not only paying high prices for questionable assets, but also promising to pay their depositors high interest rates. This was about as unsustainable as business models get, and it wasn't that hard to tell. All you had to do..."