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.
“There is no question in my mind that Britain used its influence to have an effect on the IMF,” said Skarpheoinsson, who was closely involved in difficult talks with the IMF.
Iceland’s commitments to UK Icesave account holders “was the elephant in the room during the talks,” he said.
For the time being the politicians remain the focus of popular anger. The country’s leading “business Vikings” who rode the wave of inward foreign investment, using it to fund their corporate marauding, have remained on the margins.
Hallgrimur Helgason, a well-known writer and one of the leaders of recent protests, points to the stranglehold some of these business figures have on the national newspaper and television media.
“We are left with mixed feelings,” he said. “We had been admiring of these business Vikings. They became idols. Now we understand it wasn’t so clever.”
Skarpheoinsson agrees.
“We have glorified them just as we glorified the Vikings. The media wrote quite favorably about them: They were basically good people, they did a lot for charity — nice young bankers with veins full of testosterone ... but actually they were also our media moguls,” he said.
Helga Audunsdottir, a lawyer who has recently been laid off from one of Iceland’s most prominent international investment companies, shares the anger of many protesters, but suggests many people knew in their hearts the Icelandic economic miracle had for many years become too good to be true.
“During the good times, of course nobody wanted to press the stop button. People where wondering where all the money was coming from, but they were also enjoying the wealth, buying better cars and homes. Now we will have to live on a smaller budget, a bit like how our parents lived,” she said.
Another recently out of work Icelander, who asked not to be named, said: “When the crisis started the first thought of many of my friends was to move abroad, but then we thought again. As Icelanders we are used to the most difficult environmental circumstances — the toughest in the world. There is no one better placed than us to rise to the challenge.”
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