Adam Taylor Business Insider April 15, 2012:      The president of Iceland sits in his study drinking tea from an immaculate china  set.

"If a collapse in the financial sector can bring one of the most stable and  secure democracies and political structures to his knees as happened in  Iceland," Ólafur Ragnar Grímsson says to me, "then what could it do in  countries that have less stable democratic and political history?"

The tiny country is unique not only in its stunning geography but also in its  open democracy. This democracy was pivotal in the choice to let three giant  banks fail during the financial crisis.

For Ólafur, the crisis of 2008 was personal. Once the darling of the left  wing, he worked as finance minister for several years before he became president  of the country in 1996, a largely ceremonial role that he's inhabited ever  since. Like many in the country he was once a cheerleader for Iceland's  financial sector, privatized at the start of the 21st century — and the sudden  collapse was a painful reminder that Iceland was a small, isolated place.

Now, of course, most headlines we see about Iceland seem positive. Iceland  is repaying its IMF loans early, unemployment  is down, and growth  is above average. The streets of Reykjavik seem calm and happy.

Other countries, of course, haven't been so lucky. The crisis remains front  page news in Greece, Italy and Spain — countries that followed a very different  response from Iceland's.

Ólafur argues that his country's strength came from recognizing the problem  was not just an "economic and financial challenge", but a "profound social,  political, and even judicial" challenge.

After the crisis, the country held a full judicial investigation, and went  against "the prevailing economic orthodoxies of the American, European and IMF  model." Ólafur says that he likes to think that the IMF learned more from  Iceland during this time than vice versa.

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A key example of this  approach is Iceland's refusal to pump money into failed banks. The decision was  controversial at the time, but now looks increasingly wise. "I have never  understood the argument — why a private bank or financial fund is somehow better  for the well being and future of the economy than the industrial sector, the IT  sector, the creative sector, or the manufacturingsector".

There is, of course, another aspect. A tricky situation arose when the U.K.  and Holland demanded money for their citizens' depleted Icesave accounts, and  Iceland refused. The incident sparked a major diplomatic scuffle, with Iceland  refusing to pay out and the U.K. even using "anti-terrorism legislation" against  the state.

For Ólafur, it's also a personal aspect. He was head of state, though he did  not control the government — in effect his position was more like being an  elected Queen of England than being Barack Obama. But constitutionally he had  the right to veto government legislation — though it had never been used by his  office previously.

Ólafur decided to block government legislation to pay back the U.K. Twice. Both times the legislation went to a nationwide vote, and  failed.

"It was absolutely very tough indeed," Ólafur says. "Every big financial  institution, both in Europe and in my own country was against me, and there were  powerful forces, both in Iceland and Europe, that thought my decision was  absolutely crazy."

The decision was hugely controversial, and remains a sore spot in relations.  For him, it was a matter of history. "What is our primary legacy to countries  and nations in modern times?" He says,  "Europe is and should be more about democracy than about financial markets.  Based with this choice, it was in the end, clear that I had to choose  democracy."

He also blames the British for their role, specifically Gordon Brown, by whom  he believes Iceland is owed an apology. Ólafur likens the situation to the  Falklands war, adding it was a "great offense" that "one of the most  peace-loving countries in the world, a founding member of NATO, a strong ally of  Britain during the Second World War was put together with al-Qaeda and the  Taliban on the official list of terrorist organizations."

Iceland essentially had no choice, Ólafur says.

"If you take the relative size of the Icelandic economy and the British  economy," he explains, "and you transfer over to the British economy the sum  that the British government was asking the Icelandic taxpayers to be responsible  for due to the failure of this private bank, it would have been equal [...] to  asking the British taxpayer to be responsible for an £800 billion bill [$1,275  billion] for a failed British bank in Spain and Italy and Greece."

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To Ólafur's credit,  the Icesave debts are likely to be settled soon, using money from the estate of  Landsbanki. He believes that if the U.K. and Holland had waited a while longer  there would have been no conflict.

After 2008, Icelandic relations with Europe may have been strained. It was  during a dinner with foreign diplomats that year that Ólafur reportedly said “The  North Atlantic is important to Scandinavia, the U.S. and Brit...

I also can't help but notice that one of the reception rooms in the  Presidential residence contains prominent photos of Ólafur with Vladimir  Putin and Hu  Jintao — and not a single photo, to my eyes at least, of a European  leader.

Ólafur dismisses the quote, going on to say that his problem isn't Europe,  but the European and American banking system. He says Iceland's lesson is that  "If you want your economy to excel in the 21st century [...] a big banking  sector, even a very successful banking sector, is bad news."

"You could even argue that the bigger the banking sector is, the worse the  news is for your economy," he adds, later blaming the huge growth of Iceland's  banking sector on the prevailing European banking philosophy and incompetent  rating agencies.

Instead, the country is hoping to use not only its creative and intellectual  capital, now freed from the finance industry, but also its unique geographical  situation.

"The Arctic has become one of the most crucial regions for the future of the  world, both in terms of economy, trade and climate and health," he says, adding  that he feels Iceland, a member of the Arctic Council, has a ten year head-start  on the issue, which is now attracting the interest of the EU, China and South  Korea — countries with no geographical claim on the area.

This future is something that Ólafur clearly sees himself as a part of. He  had originally told the country that he would not run for president again — he  had been in office for 16 years and felt he could work better without the  day-to-day stress.

However, after  an online petition circulating managed to get 30,000 signatures last month,  Ólafur decided to run for a fifth term. The elections will be held in June.

While other candidates have come forward, that 15 percent of the population  who have already signed up would likely give Ólafur reason to believe he will  win. He says it was the "public will" of Iceland that caused him to change his  mind. "If a large part of the nation wants me to continue, I will bow to that  public will," he says.

"But if that turns out to not be the case, that's also fine with  me."

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