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I thought this was a fascinating article from the Financial Times about the Icelandic financial implosion. The instant burden from the crisis is about like every person buying a new house at the same time -- massive. Or fighting a world war.
I don't blame young Icelanders for bailing out of the whole situation and seeking their fortunes elsewhere.
Follow the link for pics...
I don't blame young Icelanders for bailing out of the whole situation and seeking their fortunes elsewhere.
Follow the link for pics...
Friday Oct 9 2009
Iceland after a year of financial crisis
By Robert Jackson
Published: October 9 2009 17:05 | Last updated: October 9 2009 17:05
Iceland Government house
Reykjavik, seen from Government House
When a thriving economy hits the wall, it doesn’t become a third-world disaster zone overnight. The houses in Iceland still stand, the infrastructure remains in place and life, on the surface at least, goes on as normal. But the human damage is insidious. A medical analogy would be a mild form of cancer – not life-threatening, perhaps, but emotionally devastating. Shock, anxiety, frustration, fear and rising anger have led to a national malaise – an unwelcome development in a people not renowned for their cheery disposition.
Just over a year ago, on October 6 2008, Geir Haarde, Iceland’s then prime minister, appeared on television to say the government was taking control of the banks and would pass emergency legislation to save the economy from total collapse. In the weeks that followed, Icelanders’ emotions spilled over into civil unrest, but of a very particular kind. These people do not like to be seen to complain – whether out of stoicism or indifference or a combination of the two, I’ve not been able to fathom – but there was no doubting the mounting passion behind the weekly People’s Protests in Reykjavik’s Austurvöllur Square.
They started modestly last November and then steadily swelled as more details leaked out of the activities of the so-called Viking Raiders, a clique of local businessmen who loaded up on cheap debt and embarked on an orgy of overseas corporate acquisitions, untroubled by attention from the regulators. For a while, the protesters were placated by Haarde’s promises to tackle the crisis head-on, but as the weeks passed and nothing happened, it became clear that the government was frozen in the headlights of a runaway juggernaut. It would not, or could not, act.
Geir Haarde, prime minister until February 2009
In January, following the Christmas recess, Iceland’s parliament, the Althing, reconvened and a protest took place outside to give voice to an electorate who felt they were not being heard. Drums, whistles, a trawler’s foghorn and wooden spoons clattering on pots and pans produced a racket that penetrated the debating chamber itself.
Why were the people angry with the government and not the Viking Raiders? “Sure, we’re angry at them and their time will come,” said one. “But the government are the police, they are meant to protect us. They were asleep on the job and should go!” Even when it was confirmed that not only had Haarde been diagnosed with cancer of the oesophagus, but that his coalition partner, Ingibjörg Sólrún GÃsladóttir, was recovering from an operation on a brain tumour, there seemed to be little sympathy.
“It’s symptomatic. We are a sick country led by sick politicians and we need change and we want it now,” said the same protester.
Revolution is an emotive word but looking back at it now, that is what I witnessed during those few days in January. The parliament building sits in a modest square beside Dómkirkjan, Reykjavik’s oldest church, and no fences or sophisticated security devices protect the seat of government. When the peaceful protest became more boisterous, a thin black line of police in riot gear linked arms across the front of the building, raising shields and unholstering tear gas canisters and batons. My support swung towards the protesters, particularly as the most violent weapons they seemed to deploy were pots of skyr, Icelandic yoghurt, that they hurled with impressive accuracy at the helmeted heads of the Reykjavik police. The crowd swelled and jostled, and was soon joined by the country’s few anarchists, whose presence kindled an already volatile situation.
The reports on the news that night showed images of protesters sprawled on the ground, their friends pouring milk into their eyes to soothe the effects of pepper spray, and injured police being treated in hospital. It was the worst public affray the country had seen since Iceland joined Nato in 1949.
Another day and more protesters turned out at the square, this time wearing roses to signify their commitment to peaceful protest. Peaceful, but certainly not quiet, as the ship’s hooter was again in full voice. MPs appeared shocked and dazed as they were led into the parliament building to shouts of “Resign!” and “Out!” As the morning wore on, the anarchists again showed up, the racket intensified and soon the air filled with skyr and pepper spray once more.
Protesters
A demonstration calling on Mr Haarde’s government to resign
It soon became clear that police resources were stretched to the limit. Iceland, a nation of 320,000 people, employs barely 500 uniformed police officers and, with no army, they are the only means the country has to enforce the law. We seemed to be standing on the line between order and chaos, and my sympathies swung back towards the police, who were not only pelted with skyr, but had received threats of violent retribution via the internet. I was not alone – in the nation or the crowd. Many protesters were deeply upset by the abuse meted out to the police. “It should be Geir and his cronies protecting parliament, not these fellows,” one told me.
The demonstrations in Austurvöllur Square that week were trivial compared to the scenes that Britain saw during the miners’ strike or the poll-tax riots. In larger countries, governments would have steamed on imperiously, but in Iceland, everyone sensed a line had been crossed. On January 26 the government resigned.
. . .
“Is it true? Is it over? Did I throw it away?” Seldom can the words from an entry in the Eurovision Song Contest be more appropriate, coming as they do from this year’s Icelandic entry, which ended in second place. The near win was received with much national jubilation. It was strange then, to have an Icelandic broadcaster remark upon hearing the result: “Thank God we didn’t win!”
The cruel truth is that the Icelandic economy is in such a parlous state that it could not have hosted the competition next year, as the winning nation traditionally does, without plunging the country further into debt.
Protest in Iceland
Demonstrators surrounded by police
Haarde’s successor and Iceland’s first female prime minister, Jóhanna Sigurdardóttir, was elected on April 26 on a mandate to apply for full membership of the European Union and the eventual abandonment of the Icelandic krona in favour of the euro. After drawn-out wrangling, a narrow vote in July saw Iceland embark on the EU membership process. A few weeks later, at the end of August, the Althing voted to approve a revised deal that will see Iceland pay more than €3.8bn over the coming years to the British and Dutch governments to compensate them for the cost of bailing out savers who lost money in the Icesave online account run by the failed Landsbanki. The deal, if finally ratified, will pave the way for Iceland to embark on a debt-laden trudge towards full EU membership and to receive billions of euros in aid from other Nordic countries and the International Monetary Fund.
Icelanders will now have no alternative but to cope with the cuts in services and standard of living that will inevitably follow. They will also have to take on the chin the increases in taxation, in an already highly taxed nation, that will be necessary in order to pay back the country’s debt and its interest bill. If the catchword of 2009 was “kreppa” (crisis), in 2010 we can expect to hear “harka” (austerity) on many lips.
It is estimated that 65 per cent of Icelandic businesses and 25 per cent of households are on the brink of bankruptcy. Inflation is at 12 per cent, unemployment close to 10 per cent. House prices have plunged. Burglaries have doubled in the past six months and an overstretched Reykjavik police department, already struggling to reply to emergency calls at peak times, is being forced to lay off 20 officers – a tiny but all too significant figure in Iceland. Following a first round of cuts, hospital wards are facing closure, plans for an old people’s home have been put on hold and waiting lists for non-critical operations are growing.
The cracks are beginning to show and it is likely that these are just the first tremors. It feels as if we are only in the “phoney war” as we brace ourselves for announcements this winter that will set out the full extent of the budget cuts. But even now, one thing is clear: the government will need to raise revenue like never before to repay its foreign debt – and it will have to do so from a plummeting tax base.
A recent poll revealed that almost a third of all adults and a disturbing 50 per cent of 18- to 24-year-olds were considering emigration. So now Icelanders face the prospect of seeing their brightest talent lured overseas by higher salaries that have been further inflated by the weakness of the krona. “We are now earning the equivalent of $50,000 a year at LandspÃtali [the main university hospital in Reykjavik] and can get paid nearly $200,000 for the same work in the USA or Canada,” a senior physician told me. “Some have gone already and many more are considering taking the opportunity.”
One young Icelander put it more emphatically: “I don’t really have any great interest in spending my earnings to be paying down some daft debts my government is obtaining ... I’ll scrape some money together for a one-way ticket far away and take it from there. Maybe we’ll see each other in 15 years or so, who knows?”
Another recent poll indicates that more than 60 per cent of Icelanders now oppose both EU membership and the Icesave deal. This winter will see the real effects of the kreppa bite and that will have significant repercussions for the government, which is struggling to hold its coalition together. There is a good chance that the People’s Protests will start up once again in Austurvöllur Square, and disillusionment within the police force is such that some senior officers have said that they are not prepared to defend the parliament building if rioting resumes. The government that came in on the back of a revolution must be only too well aware of how easy it would be to go out on one, too.
It is not only here in Iceland that frustration is mounting. There is a widespread feeling among the foreign government officials and banks that are trying to recoup some of the tens of billions lost in failed Icelandic financial institutions that the government is dragging its feet, that there’s neither the will nor the ability to tackle the issues that must now be addressed and that grow worse by the day. Certainly, the government has been slow to bring charges against the Viking Raiders: while Bernard Madoff has been unmasked, prosecuted, tried, sentenced and imprisoned for his gigantic fraud, not a single charge has yet been brought by Iceland’s state prosecutor.
Reykjavik statue
“Outlaws”, the Reykjavik statue said to have inspired “Independent People”, a novel often cited to explain Icelanders’ obdurate nature
In many ways they did get it staggeringly wrong, but Iceland’s was not the only government blind to the dangers of the credit boom – and it becomes clearer by the day that Icelanders will pay a disproportionately heavy price for their folly.
Many here question the legality and morality of imposing such vast reparations upon this tiny nation. Iceland, they say, is not looking for charity. The country has, after all, been a full member of Nato for more than 50 years, a member of the European Economic Area for 15 years, and even became a reluctant partner in the “coalition of the willing” when the US and Britain came calling after 9/11. Now she feels victimised and humiliated.
And yet, Iceland can work her way out of this crisis. There are the country’s much-envied fisheries, and global warming will bring about the future opening of shipping routes across the Arctic Circle, with Iceland as their hub.
Additionally, there will be the chance for Iceland to export pollution-free, geothermal energy and know-how overseas, either in the form of *liquid hydrogen or through an interconnector to the European grid.
But first there is a mountain of debt to climb and Icelanders find it all but impossible to understand the paradox the government now finds itself in: while it is being lambasted for allowing its financial system to be brought down by unbridled credit, it is also being coerced to borrow like never before to get itself out of the mess. Loan packages from the IMF, a group of Nordic countries and Poland, combined with repayments to the British and Dutch governments for the Icesave debacle, will put Iceland nearly £6bn in debt by the year-end. The best estimates predict that it will take a generation to repay.
It doesn’t sound much really, particularly compared with the hundreds of billions of dollars pumped into other financial institutions around the world. But it is a figure roughly equal to Iceland’s gross domestic product. The equivalent situation in Britain would see the government forced to borrow about £1,450bn. The money required just for the annual capital and interest repayments to Britain and the Netherlands for the Icesave collapse are more than the country’s annual education budget.
. . .
Across the road from the National Museum in Reykjavik stands “Outlaws”, a sculpture by an artist called Einar Jónsson, finished in 1900. A man carries his dead wife across his shoulders while cradling a young child in his arms. Beside him walks a dog possessed of a feral glare as wild as his master’s. The sculpture is said to have inspired Halldór Laxness to write Independent People, an epic novel that helped him to win the Nobel Prize for Literature in 1955. The protagonist, a character called Bjartur of the Summerhouses, and his stubborn determination to keep his independence whatever the cost, is often cited by Icelanders to illustrate their obdurate nature. We’ve heard a good deal about Bjartur recently. That’s unfortunate for the rest of the world, since he is a manifestation of Iceland going to the barricades. The financial crisis has brought about an emergence of inward-looking nationalism, with Bjartur as its champion.
Utlendingar – foreigners such as me – tend to treat Iceland as an extension of northern Europe, much the same as anywhere else but further north. It’s not. It is a country that for more than a thousand years barely troubled the footnotes of history. For much of this time Iceland was colonised, although left to its own devices, and as a result its people grew to be as culturally distinctive as any you will find on the planet. They are not American, European, Scandinavian or anything else – they are Icelandic. An Icelander’s DNA has independence and the bonds of kinship embedded in it as clearly as the word “Brighton” in a stick of rock.
The country finds itself at a crossroads. One route sees a debt-burdened nation embrace Europe, adopt the euro and gain the greater financial security that EU membership would provide. The other is a One Nation path: a country isolated, weakened and vulnerable, and yet imbued with a belief in its talent, fortitude and ability to work through its problems. If it rejects the European path, there is a real concern that Iceland will turn in on itself, making real Laxness’s fictional Bjartur – a lonely figure stumbling battered, bewildered and yet stubbornly defiant into the arctic wilderness. For many Icelanders that would be the desirable alternative.
Iceland after a year of financial crisis
By Robert Jackson
Published: October 9 2009 17:05 | Last updated: October 9 2009 17:05
Iceland Government house
Reykjavik, seen from Government House
When a thriving economy hits the wall, it doesn’t become a third-world disaster zone overnight. The houses in Iceland still stand, the infrastructure remains in place and life, on the surface at least, goes on as normal. But the human damage is insidious. A medical analogy would be a mild form of cancer – not life-threatening, perhaps, but emotionally devastating. Shock, anxiety, frustration, fear and rising anger have led to a national malaise – an unwelcome development in a people not renowned for their cheery disposition.
Just over a year ago, on October 6 2008, Geir Haarde, Iceland’s then prime minister, appeared on television to say the government was taking control of the banks and would pass emergency legislation to save the economy from total collapse. In the weeks that followed, Icelanders’ emotions spilled over into civil unrest, but of a very particular kind. These people do not like to be seen to complain – whether out of stoicism or indifference or a combination of the two, I’ve not been able to fathom – but there was no doubting the mounting passion behind the weekly People’s Protests in Reykjavik’s Austurvöllur Square.
They started modestly last November and then steadily swelled as more details leaked out of the activities of the so-called Viking Raiders, a clique of local businessmen who loaded up on cheap debt and embarked on an orgy of overseas corporate acquisitions, untroubled by attention from the regulators. For a while, the protesters were placated by Haarde’s promises to tackle the crisis head-on, but as the weeks passed and nothing happened, it became clear that the government was frozen in the headlights of a runaway juggernaut. It would not, or could not, act.
Geir Haarde, prime minister until February 2009
In January, following the Christmas recess, Iceland’s parliament, the Althing, reconvened and a protest took place outside to give voice to an electorate who felt they were not being heard. Drums, whistles, a trawler’s foghorn and wooden spoons clattering on pots and pans produced a racket that penetrated the debating chamber itself.
Why were the people angry with the government and not the Viking Raiders? “Sure, we’re angry at them and their time will come,” said one. “But the government are the police, they are meant to protect us. They were asleep on the job and should go!” Even when it was confirmed that not only had Haarde been diagnosed with cancer of the oesophagus, but that his coalition partner, Ingibjörg Sólrún GÃsladóttir, was recovering from an operation on a brain tumour, there seemed to be little sympathy.
“It’s symptomatic. We are a sick country led by sick politicians and we need change and we want it now,” said the same protester.
Revolution is an emotive word but looking back at it now, that is what I witnessed during those few days in January. The parliament building sits in a modest square beside Dómkirkjan, Reykjavik’s oldest church, and no fences or sophisticated security devices protect the seat of government. When the peaceful protest became more boisterous, a thin black line of police in riot gear linked arms across the front of the building, raising shields and unholstering tear gas canisters and batons. My support swung towards the protesters, particularly as the most violent weapons they seemed to deploy were pots of skyr, Icelandic yoghurt, that they hurled with impressive accuracy at the helmeted heads of the Reykjavik police. The crowd swelled and jostled, and was soon joined by the country’s few anarchists, whose presence kindled an already volatile situation.
The reports on the news that night showed images of protesters sprawled on the ground, their friends pouring milk into their eyes to soothe the effects of pepper spray, and injured police being treated in hospital. It was the worst public affray the country had seen since Iceland joined Nato in 1949.
Another day and more protesters turned out at the square, this time wearing roses to signify their commitment to peaceful protest. Peaceful, but certainly not quiet, as the ship’s hooter was again in full voice. MPs appeared shocked and dazed as they were led into the parliament building to shouts of “Resign!” and “Out!” As the morning wore on, the anarchists again showed up, the racket intensified and soon the air filled with skyr and pepper spray once more.
Protesters
A demonstration calling on Mr Haarde’s government to resign
It soon became clear that police resources were stretched to the limit. Iceland, a nation of 320,000 people, employs barely 500 uniformed police officers and, with no army, they are the only means the country has to enforce the law. We seemed to be standing on the line between order and chaos, and my sympathies swung back towards the police, who were not only pelted with skyr, but had received threats of violent retribution via the internet. I was not alone – in the nation or the crowd. Many protesters were deeply upset by the abuse meted out to the police. “It should be Geir and his cronies protecting parliament, not these fellows,” one told me.
The demonstrations in Austurvöllur Square that week were trivial compared to the scenes that Britain saw during the miners’ strike or the poll-tax riots. In larger countries, governments would have steamed on imperiously, but in Iceland, everyone sensed a line had been crossed. On January 26 the government resigned.
. . .
“Is it true? Is it over? Did I throw it away?” Seldom can the words from an entry in the Eurovision Song Contest be more appropriate, coming as they do from this year’s Icelandic entry, which ended in second place. The near win was received with much national jubilation. It was strange then, to have an Icelandic broadcaster remark upon hearing the result: “Thank God we didn’t win!”
The cruel truth is that the Icelandic economy is in such a parlous state that it could not have hosted the competition next year, as the winning nation traditionally does, without plunging the country further into debt.
Protest in Iceland
Demonstrators surrounded by police
Haarde’s successor and Iceland’s first female prime minister, Jóhanna Sigurdardóttir, was elected on April 26 on a mandate to apply for full membership of the European Union and the eventual abandonment of the Icelandic krona in favour of the euro. After drawn-out wrangling, a narrow vote in July saw Iceland embark on the EU membership process. A few weeks later, at the end of August, the Althing voted to approve a revised deal that will see Iceland pay more than €3.8bn over the coming years to the British and Dutch governments to compensate them for the cost of bailing out savers who lost money in the Icesave online account run by the failed Landsbanki. The deal, if finally ratified, will pave the way for Iceland to embark on a debt-laden trudge towards full EU membership and to receive billions of euros in aid from other Nordic countries and the International Monetary Fund.
Icelanders will now have no alternative but to cope with the cuts in services and standard of living that will inevitably follow. They will also have to take on the chin the increases in taxation, in an already highly taxed nation, that will be necessary in order to pay back the country’s debt and its interest bill. If the catchword of 2009 was “kreppa” (crisis), in 2010 we can expect to hear “harka” (austerity) on many lips.
It is estimated that 65 per cent of Icelandic businesses and 25 per cent of households are on the brink of bankruptcy. Inflation is at 12 per cent, unemployment close to 10 per cent. House prices have plunged. Burglaries have doubled in the past six months and an overstretched Reykjavik police department, already struggling to reply to emergency calls at peak times, is being forced to lay off 20 officers – a tiny but all too significant figure in Iceland. Following a first round of cuts, hospital wards are facing closure, plans for an old people’s home have been put on hold and waiting lists for non-critical operations are growing.
The cracks are beginning to show and it is likely that these are just the first tremors. It feels as if we are only in the “phoney war” as we brace ourselves for announcements this winter that will set out the full extent of the budget cuts. But even now, one thing is clear: the government will need to raise revenue like never before to repay its foreign debt – and it will have to do so from a plummeting tax base.
A recent poll revealed that almost a third of all adults and a disturbing 50 per cent of 18- to 24-year-olds were considering emigration. So now Icelanders face the prospect of seeing their brightest talent lured overseas by higher salaries that have been further inflated by the weakness of the krona. “We are now earning the equivalent of $50,000 a year at LandspÃtali [the main university hospital in Reykjavik] and can get paid nearly $200,000 for the same work in the USA or Canada,” a senior physician told me. “Some have gone already and many more are considering taking the opportunity.”
One young Icelander put it more emphatically: “I don’t really have any great interest in spending my earnings to be paying down some daft debts my government is obtaining ... I’ll scrape some money together for a one-way ticket far away and take it from there. Maybe we’ll see each other in 15 years or so, who knows?”
Another recent poll indicates that more than 60 per cent of Icelanders now oppose both EU membership and the Icesave deal. This winter will see the real effects of the kreppa bite and that will have significant repercussions for the government, which is struggling to hold its coalition together. There is a good chance that the People’s Protests will start up once again in Austurvöllur Square, and disillusionment within the police force is such that some senior officers have said that they are not prepared to defend the parliament building if rioting resumes. The government that came in on the back of a revolution must be only too well aware of how easy it would be to go out on one, too.
It is not only here in Iceland that frustration is mounting. There is a widespread feeling among the foreign government officials and banks that are trying to recoup some of the tens of billions lost in failed Icelandic financial institutions that the government is dragging its feet, that there’s neither the will nor the ability to tackle the issues that must now be addressed and that grow worse by the day. Certainly, the government has been slow to bring charges against the Viking Raiders: while Bernard Madoff has been unmasked, prosecuted, tried, sentenced and imprisoned for his gigantic fraud, not a single charge has yet been brought by Iceland’s state prosecutor.
Reykjavik statue
“Outlaws”, the Reykjavik statue said to have inspired “Independent People”, a novel often cited to explain Icelanders’ obdurate nature
In many ways they did get it staggeringly wrong, but Iceland’s was not the only government blind to the dangers of the credit boom – and it becomes clearer by the day that Icelanders will pay a disproportionately heavy price for their folly.
Many here question the legality and morality of imposing such vast reparations upon this tiny nation. Iceland, they say, is not looking for charity. The country has, after all, been a full member of Nato for more than 50 years, a member of the European Economic Area for 15 years, and even became a reluctant partner in the “coalition of the willing” when the US and Britain came calling after 9/11. Now she feels victimised and humiliated.
And yet, Iceland can work her way out of this crisis. There are the country’s much-envied fisheries, and global warming will bring about the future opening of shipping routes across the Arctic Circle, with Iceland as their hub.
Additionally, there will be the chance for Iceland to export pollution-free, geothermal energy and know-how overseas, either in the form of *liquid hydrogen or through an interconnector to the European grid.
But first there is a mountain of debt to climb and Icelanders find it all but impossible to understand the paradox the government now finds itself in: while it is being lambasted for allowing its financial system to be brought down by unbridled credit, it is also being coerced to borrow like never before to get itself out of the mess. Loan packages from the IMF, a group of Nordic countries and Poland, combined with repayments to the British and Dutch governments for the Icesave debacle, will put Iceland nearly £6bn in debt by the year-end. The best estimates predict that it will take a generation to repay.
It doesn’t sound much really, particularly compared with the hundreds of billions of dollars pumped into other financial institutions around the world. But it is a figure roughly equal to Iceland’s gross domestic product. The equivalent situation in Britain would see the government forced to borrow about £1,450bn. The money required just for the annual capital and interest repayments to Britain and the Netherlands for the Icesave collapse are more than the country’s annual education budget.
. . .
Across the road from the National Museum in Reykjavik stands “Outlaws”, a sculpture by an artist called Einar Jónsson, finished in 1900. A man carries his dead wife across his shoulders while cradling a young child in his arms. Beside him walks a dog possessed of a feral glare as wild as his master’s. The sculpture is said to have inspired Halldór Laxness to write Independent People, an epic novel that helped him to win the Nobel Prize for Literature in 1955. The protagonist, a character called Bjartur of the Summerhouses, and his stubborn determination to keep his independence whatever the cost, is often cited by Icelanders to illustrate their obdurate nature. We’ve heard a good deal about Bjartur recently. That’s unfortunate for the rest of the world, since he is a manifestation of Iceland going to the barricades. The financial crisis has brought about an emergence of inward-looking nationalism, with Bjartur as its champion.
Utlendingar – foreigners such as me – tend to treat Iceland as an extension of northern Europe, much the same as anywhere else but further north. It’s not. It is a country that for more than a thousand years barely troubled the footnotes of history. For much of this time Iceland was colonised, although left to its own devices, and as a result its people grew to be as culturally distinctive as any you will find on the planet. They are not American, European, Scandinavian or anything else – they are Icelandic. An Icelander’s DNA has independence and the bonds of kinship embedded in it as clearly as the word “Brighton” in a stick of rock.
The country finds itself at a crossroads. One route sees a debt-burdened nation embrace Europe, adopt the euro and gain the greater financial security that EU membership would provide. The other is a One Nation path: a country isolated, weakened and vulnerable, and yet imbued with a belief in its talent, fortitude and ability to work through its problems. If it rejects the European path, there is a real concern that Iceland will turn in on itself, making real Laxness’s fictional Bjartur – a lonely figure stumbling battered, bewildered and yet stubbornly defiant into the arctic wilderness. For many Icelanders that would be the desirable alternative.
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