Until its dramatic banking crisis last October, Iceland’s economic miracle had been the talk of the financial world. For centuries the remote island was among the poorest nations in Europe — a farming and fishing outpost precariously dependent on trade with Hull and Grimsby in the UK and on fast-depleting North Sea fish stocks. However, since the turn of the millennium, it was transformed into a financial powerhouse.
In 2005, Icelandic President Olafur Grimsson, brimming with pride, delivered his analysis of his nation’s metamorphosis in a speech to a City of London audience at the Walbrook dining club.
“Yes, it is indeed a fascinating question. Globalization and information technology have given small states opportunities on a scale never witnessed before. Obstacles to their growth have largely been abolished and replaced by an open and wide field where talent, imagination and creativity determine what is harvested,” he said.
Drawing parallels with Viking history, Grimsson said: “Icelanders are risk takers. They are daring and aggressive. Perhaps this is because they know that if they fail, they can always go back to Iceland where everyone can enjoy a good life in an open and secure society; the national fabric of our country provides a safety-net, which enables our business leaders to take more risks than others tend to do.”
Since then the miracle has been shattered. Broken confidence in bank borrowings — which ballooned to six times Iceland’s GDP — led to the collapse of the biggest three banks, Kaupthing, Landsbanki and Glitnir, and to a run on the Icelandic krona.
A complex web of interconnected investment companies — the best known of which is Baugur, owner of stakes in House of Fraser, Iceland, Hamleys and scores of other high street store groups in the UK — was plunged into crisis. The humbled government was left with no option but to go cap in hand to the IMF for an emergency loan.
Icelandic Industry and Foreign Affairs Minister Ossur Skarpheoinsson reflects ruefully that before the crisis many politicians and media commentators had been only too glad to echo Grimsson’s proud boasts.
“I probably would have joined the chorus had I not been a simple biologist,” Skarpheoinsson said.
He recalls how struck he had been when his daughter, aged 12, had told him that when she grew up, she wanted to be a bank director.
“When I was young everybody wanted to be doctors and dentists,” he said.
Now the popular mood is rapidly changing. Soaring prices and unemployment have begun to impact on ordinary households, leaving many Icelanders struggling to understand what they have done to deserve such hardship.
Two weeks ago, an estimated 7,000 protesters — more than one in 20 people in Reykjavik — gathered in the bitter cold in front of the modest parliament building to express their fury at the perceived intransigence of the ruling Independence party. Fires were lit and a barrage of missiles shattered many windows in the parliament building. Chants called for the government, central bankers and financial regulators all to go. Most have now done so and a new interim administration has called elections for April.
Popular discontent has also focused on Britain, seen by many as having aggravated Iceland’s troubles by its heavy-handed use of terrorist laws to freeze Icelandic-owned assets at the height of the crisis in an effort to protect the interests of UK savers with Icesave, a Landsbanki account. Several shops in Reykjavik put up posters saying: “Gordon Brown and Alistair Darling not welcome here” in reference to the British prime minister and chancellor of the exchequer.