Iceland On Hold

A small island goes from being one of richest countries to one of the poorest

Opinion | Anna Claessen | March 2009

It used to be different. Coming from Iceland used to bring responses such as "wow, how exotic" and "beautiful scenery." Now all I get is "poor you."

In one year Iceland went from being one of the richest countries to one of the poorest. Talk about a transformation! Families have gone from having Christmas in the Maldives to not having enough money to visit the relatives. This is what happens when a country’s banking system collapses, as Iceland’s did last year, due to billions of dollars of highly-leveraged debt accumulated over years of overseas expansion. Trade in the Icelandic króna practically ceased.

There was a lot of Schadenfreude going around. The Danes, in particular, just grinned: Iceland had pretty much bought Denmark, including their main department store Magasin du Nord, and the newspapers. Their response to the country’s misfortune was a good laugh at our expense. Who could blame them?

Now, though, the grin is gone. Around 748 companies were bankrupt in 2008 according to Hagstofan, which is 18% more than in 2007. Interest rates are now 25%, inflation 18.6% and unemployment 10%, or the most in 14 years. Around 1,655 foreign citizens were without a job at the end of January, including 1,075 Poles. In fact, half of the Polish population in Iceland has returned to Poland due to the crisis. To help them cope, Iceland has received a $10 billion financial aid package from the International Monetary Fund.

At home during the holidays, though, you couldn’t really feel it. People complained about the situation, the soaring interest rates, unemployment, unmanageable mortgage payments and the cost of daily living. But actually it was more apparent in the media than in the environment. Icelandic people are proud, so they won’t talk about how much they’ve really lost.

On the other hand, the crisis has also brought people together and never have I had such a feeling of unity and patriotism as I did at the protest gatherings.

And it worked. The previous coalition government fell apart in the face of public protests in January and a new centrist-left, minority government was created, consisting of the Social Democratic Alliance and the Left-Green Party with a woman as the prime minister. She was also gay, which was somehow what the media focused on. To Icelanders it was not a big deal. Gay people can get married in Iceland (even in some churches) and the Gay Pride Parade attracts over 50,000 people. Declaring she’s gay doesn’t say much about how she would deal with the situation. It was more ironic since her most memorable speech was when she lost the contest for the leadership of the Social Democratic party to Jón Baldvin Hannibalsson in June 1994, when she ended her speech with: "my time will come"....well I guess it has.

While this government sits only until election time on Apr. 25 this year, they have already done plenty. They suggested a bill that would allow Icelanders to use part of their pension funds (ISK 75,000 or €521 per month) ahead of time. This will not be exempt from taxation nor compromise unemployment benefits.

They have also demanded the resignations of Iceland’s central bank governors, whom many blame for failing to avert the crisis. They want to change the model of the Central Bank so the prime minister appoints only one Central Bank governor, instead of three, for seven years at a time.

"We are experiencing a growing loss of confidence in the (central) bank at home and abroad," said the new Prime Minister Johanna Sigurdardottir. No kidding.

Time magazine named David Oddsson, Icelandic Central Bank governor and chairman, as one of the 25 people to blame for the global financial crisis.

While the two other Central Bank employees have left, Oddsson refused to step down. In a strongly worded public letter released last month, he said:

"It is noteworthy that a minister from among the group who did not listen and who herself did not lift a finger to stem the tide of the developing crisis should now act the way that she has chosen to act." He ended the letter by saying: "For my part, I have never abandoned any task that I have agreed to take on, and I do not intend to do so now"

Although a lot is changing for the better, I would not count on Iceland running to the EU. Jón Bjarnason, party group chairman for the Left-Greens, said at the Althingi parliament on Feb. 18 that the Left-Greens were against joining the EU:

"We believe it is better for the sake of protecting Iceland’s interests to remain outside the European Union and that we’re better off without it considering our independent policy."

Icelanders also seem to be against it. According to the latest poll of Icelandic newspaper Frettabladid conducted in January 59.8 % said they didn`t want Iceland to join the EU. It is interesting that when they polled people in Nov. last year 59.6 % were for the EU. When times are bad, it seems people reach for any help.

Now all Icelanders can do is wait – wait for the election, wait for the Central Bank governor to step down, and wait for this nightmare to be over. As Finance Minister Steingrimur Sigfusson said on Feb.10: "The current situation simply must come to an end."

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