Slowly but surely, recession inched toward recovery.
‘Not out of the woods yet’
Iceland’s slow recovery.
The Iceland experiment, born out of circumstance, might not have translated elsewhere. The fall of its biggest banks caused pain and hardship at home and overseas. But it pales in comparison to the global wreckage that probably would have occurred had the United States allowed companies such as Citigroup to collapse.
Allowing the krona to remain weak has hastened Iceland’s return to stability. The country’s exports, which feature fish and aluminum, were running about 11 percent higher last year, and the tourism industry also showed an 11 percent increase through November. But struggling countries bound together by the euro, such as Greece and Portugal, don’t have the ability to let their currency fluctuate to more favorable levels.
Judging by economic data and by the workaday scenes of life in the capital, the economic engines are turning again. “For a country whose entire financial system collapsed, Iceland is doing remarkably well,” said Julie Kozack, the IMF’s mission chief for Iceland, adding that the country “is not out of the woods yet.”
Iceland completed its IMF program in the summer. Inflation has fallen. Consumers are spending more money. There are new investments in geothermal energy, and the fishing waters remain plentiful. Hammers and power saws have become a familiar sound again in Reykjavik. Fewer Range Rovers clog the streets, but there’s no lack of Audis and Mercedes or BMWs.
But beneath that facade, real problems and deep uncertainty remain. The unemployment rate hovers around 7 percent. Businesses and households remain mired under crushing debt, thanks in part to a mortgage system that ties loan balances to the soaring consumer price index. Widespread anger at the government and the banks persists.
People tell anecdotes of friends seeking antidepressants and families forgoing trips to the dentist. The standard of living remains high, but a recent government survey found that half of the nation’s households find it difficult to make ends meet.
In addition, Icelanders have continued to flee to places such as Norway, which promise more opportunity and a familiar culture. “There’s a significant threat of brain drain going forward,” said Brynjar Petursson Young, a business professor at Reykjavik University.
The crisis scarred Iceland’s national psyche, and citizens are wrestling with profound questions, not only about how to return to better financial footing but also about what kind of society should emerge.
“What we had before was some sort of irrational exuberance. That has left, and maybe that’s a good thing,” said Gylfi Magnusson, an Icelandic economist who served as minister of economic affairs after the crash.
Particularly among the generation of Icelanders who fill the Cafe Paris at night and scarf down fries at Hamborgara Bullan and shuffle across the frozen tundra of the university, there seems a determination to make the future brighter than the recent past.
“The smaller the country gets, the bigger the national pride, the bigger the soul. Here we are on a tiny island, with nothing but our pride,” said Hannesson, the student council member.
Driving the streets of Reykjavik on a recent evening, he proudly pointed out the landmarks of his city — the stone Parliament building, the presidential mansion, even the hot dog stand where President Bill Clinton once ate. He circled east and pointed toward the shimmering glass buildings that once housed the banks that brought down a country.
“The modern-day financial Vikings, I think we feel scarred by the reputation they gave us,” he said. “Especially among the younger population, there’s a desire to do things better and more honorably.”
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