Roger Boyes The Times of London October 9, 2008
The doughty Icelanders know that they have only squatters' rights on their volcanic island. White steam hisses and spumes its way through the thin crust of the earth; nature seems to be constantly irritated.
Now, though, the feeling on this tiny, angry island goes beyond physical geography. The eruption in the global financial markets has hit Icelanders in an elemental way. Across the world, banks are going under or being given expensive life-jackets. In Iceland, which has let its banks run free, the country itself could go under. Even the Prime Minister, Geir Haarde, admits as much: "There is a very real danger, fellow citizens, that the Icelandic economy in the worst case could be sucked into the whirlpool, and the result could be national bankruptcy."
Suddenly an island with a population of 300,000, seen for the past decade as the essence of cool - a successful nation where people couldn't stop partying - is on the brink of becoming a failed state. That naturally worries the world - and Britain more than most, as Icelanders have bought into institutions such as Hamleys and Moss Bros, Karen Millen, House of Fraser, Whistles, Woolworth's and West Ham United. But for Icelanders it represents a psychological and moral crisis.
Who to blame? How to survive? What did the islanders give up when they chased the money, forgot their roots and turned themselves into a Nordic Tiger?
"We're furious. Livid," says Svanur, who runs the Kaffibarin pub in downtown Reykjavik, over strong black coffee at the counter of his bar. The pub is famous for being once co-owned by Damon Albarn, the lead singer of Blur, one of several rock stars who thought that they had found peace on the island. "These people have been gambling with our life savings. What we need now is for a foreign bank to come in and give us proper banking services." That view is shared around the pub, which is abuzz with gossip. "They've all taken flight - run away to the Cayman Islands," sneers an electrical engineer.
Around the corner at the Hotel 101 bar, once a bustling hang-out for Reykjavik's globalised money class, there is no one to be seen. With its long, purple-lit table, it looks rather like an overdesigned mausoleum.
"It's Monday night, what do you expect?" says the churlish barman. "Actually," I say, "it's Tuesday." The barman shrugs and stops the photographer from taking shots of empty seats. Why? "Orders from the owner." Who, for the time being, is Ingibjörg Pálmadóttir, wife of Jón Asgeir Jóhannesson, owner of the Baugur investment group and one of the tycoons who has been prudently absent from the island for a while.
So how did the Hotel 101 - named after Reykjavik's most exclusive postcode - come to be the watering-hole of a financial elite? For centuries Iceland had a fish-based economy, even fighting a war with Britain to keep its lucrative cod trawling grounds. Then it began exporting aluminium, and then, after free-market reforms introduced by the Thatcherite Prime Minister Davìd Oddsson, it rapidly privatised its banking sector and moved into the business of financial engineering - to such an extent that a handful of Icelandic banks, expanding aggressively, have ended up with liabilities more than eight times the national GDP.
That gold rush, at the beginning of this century, has spun the illusion of wealth. Dorrit Moussaieff, the jet-setting jewellerydesigner wife of President Ólafur Ragnar Grimsson, set the tone, with her coterie of girlfriends - Rannveig Rist, the general manager of Alcan Iceland; Tinna Gunnlaugsdóttir of Iceland's National Theatre; artists and gallery owners - all regulars at the now eerilly silent 101.
But it wasn't just a wealthy elite who surfed the Zeitgeist. Ordinary Icelanders were swiftly freed from the idea that they belonged to an impoverished society where the key question about a future bride was: is she a good housekeeper? In the past five years, people's average wealth has grown by 45 per cent - and the money has gone into houses and cars, financed by 100 per cent loans based on a spread of foreign currencies. Now the krona is plummeting, loans are ballooning and thousands are defaulting. The only good news is for foreign visitors, for whom beer has at last become affordable.
Some, like Kristian, who has worked in the fishing industry since he was 16, when he shipped fish to Germany, are philosophical about it all. Bad years, good years; boom and bust - that is nothing new for a fishing nation. "We've just forgotten about it - how we used to eat haddock and cod-tail because the fleshy, good cod had to be exported," says the 53-year-old, seated on Reykjavik's tidy harbourside. Grizzled and articulate, he now drives a delivery van for some of his old trawlerman friends. "The priorities went askew in the past few years - we thought we could have jam on our bread every day of the week."
In fact, even the fishing industry has changed. "There were always secure jobs on the fleets, on the dockside and in the processing factories," says Kristian. "Now all processing is done at sea, the fisherman returns maybe once every 45 days and the fish is already frozen, ready to be exported." The effect: Reykjavik no longer smells of fish and seagulls no longer wheel around the docks in hungry squadrons. The capital has become almost genteel. The old town district has a freshly painted feel - a Max Mara shop looks like an overdressed intruder between wooden-slatted houses - and the rather bleak 1970s Reykjavik, with its architectural nods to Slough, has all but disappeared. Money has allowed a makeover.
There are only a few tell-tale signs of trouble - the hole where the foundations for a new Landsbanki headquarters were to be sunk has been quietly filled and tarred over to form part of a car park. And the new Landsbanki-sponsored opera house looks as if it may not be finished.
If there are still Vikings in this Iceland, they are the financial marauders setting out for Britain - not to pillage and plunder, but to snap up a chunk of French Connection.
But now, suddenly, Icelanders have grasped that such activities do not represent the future of the island and, indeed, they could be its downfall. The new Vikings have been thriving on the cronyism and back-scratching culture of Reykjavik. Since the beginning of the 20th century banks and government have worked hand in glove. If a minister slipped into Opposition, he was more or less guaranteed a post as a bank director. The privatisation of the banks was supposed to end all that, but it merely continued by other means.
Professor Thorvaldur Gylfason of Reykjavik University has been predicting disaster for years - on his desk sit wooden blind and deaf monkeys, representing central bank policymakers - and has been shunned for his efforts. "We have Thai-style croneyism that has failed the system," he says. "The Government is not on top of the situation. It is in denial and has not been truthful about the system."
At the heart of this almost cabal-like approach to running the country is the sheer smallness of the capital city. Its two best schools, a classical grammar school and a business-orientated one, generate the elite. There is a fierce rivalry between them, but at the same time there is elaborate bonding going on. So the vice-chairman of the imperilled Landsbanki turns out to be an extremely good friend of the head of the central bank. The controls, insofar as they ever existed, are subverted by this shared intimacy: once the two men shared secrets about kissing girls, now they are running the economy.
Talking to the young students in Kaffibarin, one might think that Iceland is preparing for a revolution. "They should be hounded down wherever they are," says one firebrand, "brought back from the Cayman Islands or wherever they are hiding and brought to trial."
The business and political class are seen as traitors. Yet the anger is not simply a call for swift and sharp justice. Icelanders are returning to their sense of being islanders, rather than global players who can throw weight around in London and beyond.
Islanders, when they return to their roots, know that they have to accept geographical limitations. On some Antarctic islands there is a breed of butterfly that cannot take off - it has learnt that it is safer not to fly than to risk the storm winds. One middle-aged Icelander, asked why he didn't just leave if he was so unhappy, looked at me with unblinking eyes: "And what if I went to Denmark or wherever and got lost? Who would look for me?"
Secondly, Iceland remains a deeply Protestant country. Some of the people's anger is turned against themselves. "We went along for the ride, didn't we?" says the thirtysomething actress Sólveig Arnarsdóttir, who is dressed in a striking red seaman's coat to shield her from the Atlantic wind.
"It's right to be worried now about the people who will lose their jobs or who are bending under their debts. I've got a house that was essentially owned by the banks; now it's owned by the Government, so maybe that's not a tragedy. But we have to think again about our obsession with money."
She and her friend Gudrún Gudmundsdóttir, one of Iceland's leading human rights activists, agree that the new Vikings, the financial bounty-hunters who have gained such clout, are part of a culture that is too testosterone-driven. "A third of our members of parliament are women," says Arnarsdóttir, "but guess what - Parliament has had almost no say in what has been going on between these men in suits." Gudmundsdóttir agrees: "We have to open up boards of companies to women."
Across the social spectrum, Icelanders agree: life has to change. You can't wish away global capitalism but you can change the way that elites manage that capital. The alternative is to see your country disappear down the plughole. "Running off to get a loan from Putin - why did they do that?" says an astonished Professor Gylfason. "Maybe they just thought that the Russians wouldn't tie the cash to changing the financial management of the country."
Whatever the reason, the kids in the still-just-cool clubs of Reykjavik know the metaphor that applies to their reckless rulers: they are dancing on the edge of the volcano.
http://www.timesonline.co.uk/tol/travel/article4909177.ece
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