Recovery from financial disaster: the Icelandic way

The Blue Lagoon geo-thermal pools in Iceland near Reykjavik. (Steve Allen/Getty Images)

Time was Iceland counted itself as the happiest of nations. With the highest per-capita GDP in the world, this nation of 300,000 tumbled hard in the global financial crisis. In "Meltdown Iceland: Lessons on the World Financial Crisis From a Small Bankrupt Island," Roger Boyes charts the country's path to over-exhuberance, greed and miscalculation -- journey that mirrors the collapse in the United States. Here, Boyes explores how Iceland is taking a hard look at what it lost and how it can regain the life it once had.


There are many Icelandic proverbs, some rude, others darkly impenetrable, but the one I like is : Money maketh monkeys out of men. Surely this has become true of the Icelanders on their chunk of North Atlantic rock, mocked, tempted and wrecked by the global crisis.

Until the great bubble of recent years -- the easy-credit frenzy that gripped us all -- Iceland was ruled by the rhythms of the soil and the sea. There were bad years for cod, and good years. When the nets were full, you made and saved money. In the rougher times, you played chess with pieces crafted out of whalebone (since wood is a luxury on the tree-less island). It was a place where, until recently, television was banned on Thursday evenings so that you had time to read, talk to your spouse or, in extremis, play bridge. And until 1989 -- a momentous year across Europe -- beer was banned lest it corrupt the young.

Then, in the 1990s, a government of Milton Friedman-fans launched a privatization wave, sold off state banks to political allies and tried to free the island from the fish-habit. The financial sector ballooned, self-made millionaires went on a buying spree across Europe funded by loans from banks that they had bought. The trawlerman, the baker and the candlestick-maker took out Yen-denominated loans so that they could install state-of-the-art German kitchens and buy Range Rovers; Christmas shopping was conducted in New York; the rich flew in their business associates from Wall Street and London and entertained them on the banks of Iceland's clear-as-gin salmon rivers that they had bought up as a summer diversion. There was a collective loss of dignity, a making of monkeys.

In October 2008, the blister popped and the first nation-state to go under was Iceland.

So I decided to live there for some months and watch capitalism, or more precisely dreams about capitalism, crumble. It has been an instructive time.The island is an antidote to vertigo, to the dizzy abstraction of unfathomable numbers, the too-big-to-fail philosophy.

No other society, it seems to me, has been quite so reflective about the crisis, so ready to turn popular resentment into something constructive. And I don't just mean that Iceland has become one of the few countries without a McDonald's (though there is something pleasing about watching the kids now queue at the Reykjavik bus station for kjammi og kok -- flattened sheep's head with Coke).

The first response to the crisis was to take to the streets, banging their pots and pans, until the government agreed to hold an early election.Now the country has a female prime minister and a cabinet dominated by women. The assumption is that Iceland's uncharacteristic bubble behavior, its recklessness on world markets, was due partly to an excess of testosterone. They're putting that right.

The government brought in a foreign -- and female -- prosecutor, the formidable Eva Joly to help determine what was criminal and what was merely negligent in the behavior of the banks and companies that skimmed the cream in the years preceding the crash. She is opening the account books and following the paper trail. This, in a society that has a police force of almost Toytown proportions (and, by the way, no army at all).

Next step: The new leaders called in 1,500 people -- a representative cross-section of the 300,000 population -- for days of discussion about what the country really wanted. What should Icelanders expect of their state? What should they expect of themselves? They came up with dozens of rational and practical suggestions from public health care to pre-school child care and these are now being fed into the political process. Essentially, the tiny nation is embarking on a painful, but intriguing process of learning to live within its means, of securing quality of life without plunging deeper into debt.

There is far more: the re-birth of the small entrepreneur, teenagers designing and selling computer games rather than emigrating and, oh yes, a baby boom.

By Steven E. Levingston |  December 16, 2009; 5:30 AM ET Politics , Steven Levingston
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Please email us to report offensive comments.

"The new leaders called in 1,500 people" - could not be further from the truth.

In fact the new "National Assembly" was organized by an independent group out of frustration of the inaction of the government. Finally once the government saw that they had to take it seriously, they agree to interface to it. There continue to be daily protests outside the government as ordinary people voice their protests about the lack of progress as various establishment groups attempt to hang on to their vested interests.

Perhaps the Icelandic National Assembly model is one that would serve other countries well, for the same reasons.

Posted by: JanineThompson | December 16, 2009 7:02 AM

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