Global credit crisis or not, I’m sick of reading (and typing) the words “crumbling” and “tumbling”, “freefall” and “meltdown”, and “bottomless pit of despair and agony”. So I’ll start this post by saying that I will use “Reykjavik” as a noun and verb to describe all of these concepts (and a few others), all in honor of Iceland: the first major casualty of this totally Reykjaviked financial situation on our hands.
Iceland has always been an insular place. The lush, little ball of lava was first colonized by Vikings and magical elves who didn’t much care for the stodgy mainlanders. Their tradition of aloofness and fondness for haddock has remained to this day. This aloofness survived even during the past few years as the island became a tourist spot known for its unique art scene, stunning natural beauty and lively nightlife. Meanwhile, the inflated economy and high interest rates drew millions in foreign capital from investors hoping for a better return on their deposits. This created two illusions for Icelanders: 1) the illusion of wealth and 2) the illusion that the rest of the world gave a Reykjavik about them.
Were Icelanders wealthy? Everyone seemed to think so because of the expansive assets that the three major Icelandic banks acquired throughout Europe over the last decade—Hanley Toys being one, because you know elves and toys are inseparable—all totaling 100 billion Euros. In a country whose GDP is less than 10 billion, that presents a slight problem when liquidity freezes: Like a shiny, spinning top, the tiny base that the government offered was only enough to support the floating island of wealth if enough hands kept it in motion. Those hands drew back very quickly when two of there three major banks, Glitnir and Landsbanki , were seized one after the other. Alas, no amount of geothermal hot springs and/or elf magic was enough to thaw the hearts of authorities in London and the Netherlands, who froze the assets of Iceland’s last major bank standing, Kaupthing, when it became clear that depositors from the two countries had no guarantee on their assets should the bank collapse. The move ironically sealed the fate of the institution, and perhaps of the country at large.
Icelandic PM Geir Haarde was less than pleased by this pre-emptive move, and it’s only by the good (and ever-sinister) graces of Vladimir Putin that Iceland has any continental support at all. The country received a four-billion Euro loan from Moscow, but with the value of the Krona now less than half of what it was at the beginning of the year, one must wonder how they ever intend to repay Russia. It may not be with cash...
Russia and Iceland do have one thing in common: a sense of isolation from the rest of Europe, though the Icelandic dislike of authority doesn’t quite mesh with war-mongering (and perhaps secret-assassination happy) Putin. Iceland’s isolation is a little more innocent. For example, their decision to remain outside the E.U. was largely motivated by the restrictions that inclusion would have placed on their fishing and whaling industry, which is one of their only major exports aside from twee, nonsensical music. Now some are suggesting that they be given a fast-track to E.U. citizenship to stabilize the country—Strike one against Iceland’s culture. Iceland’s decision to expand its assets into new territories allowed its young entrepreneurs—and louts, alike—to adopt the mantle of hip jetsetters and hypertrophic consumers without making cultural concessions at home. Now, in major debt to Mother Russia—and perhaps soon to the IMF as well, though Iceland has not yet officially requested aid from the Washington-based institution—the question is: What will be left of Iceland after the bill-collectors have taken their due?
Iceland has many natural resources, and Russia may find the prospect of tapping them increasingly attractive as Putin’s regime pawns off much of their own to China. However, sacrificing the island’s ecological integrity is in complete conflict with Iceland’s national pride as well as with their other major draw: eco-tourism. The pristine and dramatic landscape is home to the breeding grounds of many European birds, and spoiling the land would draw conservationist ire from around the globe. Despite clinging to their small and—I grudgingly admit—relatively responsible whaling industry, Iceland has until now been a beacon for environmental progressiveness. Sadly, sacrificing the land to save the economy may be unavoidable at this point, depending on how scrupulous the country’s saviors choose to be with their stake in the economy. An IMF loan would be the first offered by the agency to prop up the economy of a developed nation. As of Thursday morning (October 23) the rumored figure was in the area of 6 billion dollars, much of which would go towards loans held by banks in Japan. At least Japan—with their mutual penchant for whale meat, isolationism and living around active volcanoes—is a far better bedfellow for Iceland than Russia.
In short, Iceland’s tale is that of the classic, rakish decadent, who in a short time squandered his wealth, his reputation and perhaps his future for a few cheap thrills. And the worst is not over; the spending spree in the good times and the high interest rates at local banks encouraged the citizens to seek loans abroad, which they must now repay with a deeply devalued currency. Even the cheap labor force—Poles and Lithuanians—have packed up and left as they no longer profit by sending their meager paychecks home. There is no telling how Iceland will dig itself out of this fumarole, but one can be certain that the country will change dramatically as they dig and dig and dig—all on their own, for now. At least they’ll always have the Aurora Borealis—or perhaps it too will be blotted out by the smoke of industry that may yet be coming. That would be a Reykjaviking shame.