The snow has arrived early in Reykjavik after an unusually long and warm summer. The freeze has brought out the ghostly green haze of the aurora borealis — the Northern Lights — the shape of which shifts dramatically across the tiny city’s black skies.
The bars and restaurants of Iceland’s capital are packed, the Range Rovers and BMWs are parked nose to tail all along the streets of the central 101 district, and music is pumping from a black stretch Hummer limousine cruising by.
“What can we do? Its difficult times but we’ve spent all day talking about it, watching the news getting worse and worse, we had to go out and be with friends. Maybe it’s like the party at the end of the world,” says Egill Tomasson, 32, sitting in the Kaffeebarinn bar.
Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland’s currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country’s three independent banks has been nationalized, another is asking customers for money, and the discredited government and officials from the Central Bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won’t send any more money and supplies of foreign currency are running out.
People talk about whether a new emergency unity government is needed and if the EU would fast-track the country to membership. On Friday the queues at the banks were huge as people moved savings into the most secure accounts. On Saturday people were buying up supplies of olive oil and pasta after a supermarket spokesman announced on Friday night that they had no means of paying the foreign currency advances needed to import more foodstuffs.
This North Atlantic volcanic island, the size of Cuba and with a population of 320,000, is an unlikely player on the global financial stage. It is famous for its fish, geysers and for winning the UN’s “best country to live in” poll last year.
But Iceland built its extraordinary wealth on the crest of the worldwide credit boom and now the crunch is sweeping it away, bankrupting a people for whom the last eight years have been, for most of them and by their own admission, one long party.
The nation’s celebrated rags-to-riches story began in the 1990s when free market reforms, fish quota cash and a stock market based on stable pension funds allowed Icelandic entrepreneurs to go out and sweep up international credit.
Britain and Denmark were favorite shopping haunts, and in 2004 alone Icelanders spent US$1.57 billion on shares in British companies. In just five years, the average Icelandic family saw its wealth increase by 45 percent.
But as a result of the international banking crisis, the billionaires who own major names such as — in Britain alone — West Ham United soccer club, the Somerfield supermarket chain, Hamley’s toy shops and the House of Fraser department stores, are in trouble and the country is drowning in debt.
Iceland’s cheap labor force, the Poles and Lithuanians, have left already — there’s little point in sending home such a worthless currency, and the tourist season is over. Iceland is on its own.
In the Kaffeebarinn, Egill Tomasson isn’t drinking because he has a music festival to organize. Iceland Airwaves takes place in a fortnight, when more than 100 Icelandic bands and 50 foreign ones will play in venues around the city over four days. Most of the tickets have been sold in krona, but the international acts need to be paid in euros, which is going to cost the organizers dearly.
“People here are going to need this festival,” Tomasson said. “This crisis has been a heavy blow. And many people should have a bad conscience for what has happened. Someone should be prosecuted, they have sucked Iceland dry, taken the money and ran, and left us totally in the shit. People I know who have gone to the UK or the US to study have found their grants worthless; they are stranded.”
Like many his age, Egill has only a vague memory of harder times, before the boom that brought Iceland the highest per capita wealth in the world. Older islanders call them the “Krutt-kynslotin” — the cuddly generation. Eco-aware, earnest but pampered, they drift from organic cafe to bar, listening to the music of Bjork and Sigur Ros, islanders who have made it big abroad.
“They will have to get their hands dirty now,” chef Siggi Hall says.
“That’s good though, they are the i-generation; iPods, iPhones, everything starts with ‘i.’ Well, we will have to go back to the basics now. Icelanders are risk-takers, but hardworking; they will have to downsize. We will have to eat haddock and Icelandic lamb and forget these imports of goose livers and Japanese soy sauce. When everyone was extremely rich in Iceland — you know, last month — it was with money that they never … earned. Now those who were extremely rich are just normally rich, but they think they are poor. They were spoiled, spending billions,” Hall says.
Hall is due to open his new restaurant on Friday next week, but insists the crisis is not worrying him.
“I had been losing customers because people were flying off to Copenhagen and London and New York for the weekend, to eat out. Now they will stay in Iceland, but they will still eat out. People need to eat,” Hall says.
Outside the city’s Hofdahollin car showroom, looking a little rumpled for men trying to sell new and used cars for US$61,500 and up, owner Runar Olafsson and his top salesman are sharing a Marlboro. They are not expecting any customers today.
“A few years ago we couldn’t get enough top-end cars and we started importing them. We were selling 120, 140 a month. But it turned around so fast,” Olafsson said. “It’s so dramatic, just in one month. We have already seen two dealers go down.
“Customers would come in and we would apply for credit online for them, a 100 percent loan, and they can drive away in their new Range Rover. It took 10 minutes, it was very easy. But 60 to 70 percent of those loans were in foreign currency, Japanese yen or Swiss francs, and they have gone up 90 percent as the krona burns. A car worth 5 million krona now has a 9 million loan on it; how are people going to make those payments?” Olafsson said.
Foreign currency loans are a problem for homeowners, too.
“Loans have been very cheap, house prices rose and there was a lot of good-quality house building. But the building has halted, nothing is being finished, nothing is selling. The interest rates are staggering. What people are doing now is swapping houses if they want to go bigger or smaller. That is what is keeping us afloat,” says estate agent Ingolfur Gissurarson. His mobile goes off — the ringtone is A Hard Day’s Night.
“I changed it to suit the times,” Olafsson said.
Blame it on the Vikings. Icelanders like to hark back to their ancestors, the rebel Vikings who, as the nation’s most revered daughter Bjork once explained, “couldn’t deal with authority in Norway. So they flew off in this mad ocean in a wooden boat which is pretty hardcore, North Atlantic in the year 800. And they found this island full of snow ... yeeeah!”
“The Icelandic psyche is an important part of all of this,” says Hellgrimur Helgason, who writes an outspoken newspaper column that exposes feuds between Iceland’s ruling class and its entrepreneurs. He is also the author of 101 Reykjavik, a popular novel populated by “Krutt-kynslotin” characters.
“Before the market reforms the country had stagnated, no one thought Icelanders could be businessmen. We were poor fishermen or farmers, so it had an incredible effect on confidence when we saw these young men out buying up British and Danish companies. Everyone grabbed at the new opportunities like children. Really, it was no surprise that Hamley’s toy shop was one of the first purchases,” Helgason said.
Gunnghilder Sveinbjarna and her friend, Anna Lara Magnusdottir, are ordering their second bottle of red wine in the Philippe Starck-designed interior of Reykjavik’s Bar 5. Tonight the young women are feeling no pain.
“We come out at the weekend to forget our children and our problems, and this time we will drink extra hard to make sure we forget the economic crisis too,” says Gunnghilder, raising a glass. “Tomorrow the sore head.”
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