When the GFC hit Iceland, the authorities at first attempted to do the orthodox (but not necessarily the right) thing. They proposed a massive austerity program. The president of Iceland refused to sign the laws into effect. The people supported him. The government fell, and Iceland defaulted on its debts.
And guess what? Iceland's recovering.
One beneficial factor that Iceland had which Greece, Ireland etc don't, is that it had its own currency, the krona, which was allowed to devalue. But it's such an open economy and so small that that won't have had any major impact.
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