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| Iceland starts to recover its voice after financial crisis | Iceland starts to recover its voice after financial crisis |
| (4 months later) | |
| As north Atlantic gales batter the harbour of Reykjavik and dark creeps over the city by late afternoon, one building refuses to be dulled by the incoming gloom. Looking out to sea, the Harpa - a glass and steel concert hall lit like a giant neon honeycomb – stands in stark contrast to the low-rise corrugated iron buildings of the capital. | As north Atlantic gales batter the harbour of Reykjavik and dark creeps over the city by late afternoon, one building refuses to be dulled by the incoming gloom. Looking out to sea, the Harpa - a glass and steel concert hall lit like a giant neon honeycomb – stands in stark contrast to the low-rise corrugated iron buildings of the capital. |
| Conceived during the headiest days of the boom, when Iceland's financial viking raiders were marauding through Europe, the project was abruptly halted in late 2008 when the fragile financial edifice its backers had constructed collapsed. Many thought the desolate, part-built skeleton of the building should be left incomplete: a grim monument to greed and overreaching ambition. But the Icelandic government pressed on, and little more than four years after the crash the Harpa is feted as "a symbol of Iceland's renewed dynamism". | Conceived during the headiest days of the boom, when Iceland's financial viking raiders were marauding through Europe, the project was abruptly halted in late 2008 when the fragile financial edifice its backers had constructed collapsed. Many thought the desolate, part-built skeleton of the building should be left incomplete: a grim monument to greed and overreaching ambition. But the Icelandic government pressed on, and little more than four years after the crash the Harpa is feted as "a symbol of Iceland's renewed dynamism". |
| It is no empty boast. Iceland's economy is set to grow by 2.7% this year while the eurozone is expected to shrink by 0.3%. Unemployment has fallen to 4.5%, half the amount it was at its peak and the budget deficit that reached 13.5% of GDP in 2009 fell to 2.3% last year. Bailout loans have been paid back ahead of schedule and by the middle of last year the country had regained access to capital markets. In February ratings agency Fitch restored its investment-grade status, citing its "unorthodox crisis policy response". As economist Paul Krugman put it: "Iceland broke all the rules, and things are not too bad." | It is no empty boast. Iceland's economy is set to grow by 2.7% this year while the eurozone is expected to shrink by 0.3%. Unemployment has fallen to 4.5%, half the amount it was at its peak and the budget deficit that reached 13.5% of GDP in 2009 fell to 2.3% last year. Bailout loans have been paid back ahead of schedule and by the middle of last year the country had regained access to capital markets. In February ratings agency Fitch restored its investment-grade status, citing its "unorthodox crisis policy response". As economist Paul Krugman put it: "Iceland broke all the rules, and things are not too bad." |
| Problems undoubtedly remain: inflation, huge household borrowings, government debt that stood at 128.6% of GDP in 2011 and a vastly chastened krona among them. But after tearing up the monetary policy rulebook, letting its banks fail and steadfastly maintaining its social model, Iceland is experiencing an economic resurgence which seemed inconceivable immediately after the crash. | Problems undoubtedly remain: inflation, huge household borrowings, government debt that stood at 128.6% of GDP in 2011 and a vastly chastened krona among them. But after tearing up the monetary policy rulebook, letting its banks fail and steadfastly maintaining its social model, Iceland is experiencing an economic resurgence which seemed inconceivable immediately after the crash. |
| Sitting in the ultra-modern coffee bar of the Harpa, Steingrímur Sigfússon, who presided over the ministry of finance from February 2009 before recently being appointed minister of industries, is cautiously optimistic. "So good so far we can say, we are definitely recovering, growth is back, unemployment is falling and standard of living is slightly rising again," he says, taking a pinch of Icelandic snuff. "When I became minister of finance the question I very often got was 'is there going to be a national default?'. I don't get that question anymore, it's at least one and a half years since I've been asked it. That is something." | Sitting in the ultra-modern coffee bar of the Harpa, Steingrímur Sigfússon, who presided over the ministry of finance from February 2009 before recently being appointed minister of industries, is cautiously optimistic. "So good so far we can say, we are definitely recovering, growth is back, unemployment is falling and standard of living is slightly rising again," he says, taking a pinch of Icelandic snuff. "When I became minister of finance the question I very often got was 'is there going to be a national default?'. I don't get that question anymore, it's at least one and a half years since I've been asked it. That is something." |
| A default seemed imminent when in October 2008 Iceland's three major banks - which had grown to nine times the country's entire economic output – fell in quick succession following the collapse of Lehman Brothers, forcing the country to ask for huge loans from the IMF. The stock market was suspended and when it reopened it had plunged 77%, inflation peaked at around 20%, unemployment rocketed and the krona dropped 80%. | A default seemed imminent when in October 2008 Iceland's three major banks - which had grown to nine times the country's entire economic output – fell in quick succession following the collapse of Lehman Brothers, forcing the country to ask for huge loans from the IMF. The stock market was suspended and when it reopened it had plunged 77%, inflation peaked at around 20%, unemployment rocketed and the krona dropped 80%. |
| When attempts to shore up the banks proved ineffectual, the new governmentwhich took office in early 2009 let them fail. It installed capital controls to prevent the flight of money from the country and made sure domestic depositors got their money back from the failed banks while, controversially, refusing to repay (mostly UK and Dutch) foreign creditors. Criminal investigations were launched into the banking elite, and courts found former prime minister Geir Haarde guilty of failing to hold emergency cabinet meetings in run up to financial crisis. | When attempts to shore up the banks proved ineffectual, the new governmentwhich took office in early 2009 let them fail. It installed capital controls to prevent the flight of money from the country and made sure domestic depositors got their money back from the failed banks while, controversially, refusing to repay (mostly UK and Dutch) foreign creditors. Criminal investigations were launched into the banking elite, and courts found former prime minister Geir Haarde guilty of failing to hold emergency cabinet meetings in run up to financial crisis. |
| Other policies for coping with the shock waves have been firmly left-of-centre, a move which has prompted the IMF to praise Iceland for "managing to preserve, and even strengthen, its welfare state during the crisis". The government – allowed to carrying on borrowing and spending for a year before spending cuts kicked in – wrote off any homeowners debts above 110% of the property value and declared bank loans indexed to foreign currency illegal. While budgets across the board were slashed the government shielded education, health, social security and policing – instead trying to boost consumption. | Other policies for coping with the shock waves have been firmly left-of-centre, a move which has prompted the IMF to praise Iceland for "managing to preserve, and even strengthen, its welfare state during the crisis". The government – allowed to carrying on borrowing and spending for a year before spending cuts kicked in – wrote off any homeowners debts above 110% of the property value and declared bank loans indexed to foreign currency illegal. While budgets across the board were slashed the government shielded education, health, social security and policing – instead trying to boost consumption. |
| But Iceland has become an undeserving poster child for the "let the banks fail" camp, according to political and environmental activist Jon Thorisson. "Sorry to disappoint you guys, but we are just not that great," he says, sitting in the hip surroundings of the Kex hostel bar. "The government tried - it put what money it had into the banks, it just wasn't enough. It's scary that people think we did everything right." He doesn't buy the line the Iceland has risen from the ruins of the crash. "The official line is it's going so well – but why?," he says. "Because our currency plummeted. What we have seen is not a structural change, but incidental." | But Iceland has become an undeserving poster child for the "let the banks fail" camp, according to political and environmental activist Jon Thorisson. "Sorry to disappoint you guys, but we are just not that great," he says, sitting in the hip surroundings of the Kex hostel bar. "The government tried - it put what money it had into the banks, it just wasn't enough. It's scary that people think we did everything right." He doesn't buy the line the Iceland has risen from the ruins of the crash. "The official line is it's going so well – but why?," he says. "Because our currency plummeted. What we have seen is not a structural change, but incidental." |
| Like many people the Guardian spoke to, he believes the real shift has not been economic, but cultural. Excessive consumption is seen as "very 2007", while a renewed interest in Icelandic culture and heritage has resulted in a rash of traditional sweaters across the city, he notes wryly: "Pre crisis we were talking about our new kitchens. Now we are talking about politics and the type of society we want and it's high time we did that." | Like many people the Guardian spoke to, he believes the real shift has not been economic, but cultural. Excessive consumption is seen as "very 2007", while a renewed interest in Icelandic culture and heritage has resulted in a rash of traditional sweaters across the city, he notes wryly: "Pre crisis we were talking about our new kitchens. Now we are talking about politics and the type of society we want and it's high time we did that." |
| The government insists it has been through the same existential crisis and is "diversifying the economy" as a result. Recent figures from Fitch show the financial services industry has shrunk to one fifth of its former size, tourism was up 8.3% last year while government figures reveal, perhaps not coincidentally, that income distribution is more equal than in previous years. Part of this diversification comes from taking other sectors seriously, such as the creative industries, according to Katrin Jakobsdottir, minister for education, science and culture. | The government insists it has been through the same existential crisis and is "diversifying the economy" as a result. Recent figures from Fitch show the financial services industry has shrunk to one fifth of its former size, tourism was up 8.3% last year while government figures reveal, perhaps not coincidentally, that income distribution is more equal than in previous years. Part of this diversification comes from taking other sectors seriously, such as the creative industries, according to Katrin Jakobsdottir, minister for education, science and culture. |
| Speaking after a keynote speech at the You Are In Control creative conference in Reykjavik, held, of course, in the Harpa, she explains that plans are underway to siphon money from state-controlled banks (it holds small stakes in two, and plans to keep a two thirds stake in Landsbankinn, a bank created from the ruins of the failed Landsbanki) to creative ventures. | Speaking after a keynote speech at the You Are In Control creative conference in Reykjavik, held, of course, in the Harpa, she explains that plans are underway to siphon money from state-controlled banks (it holds small stakes in two, and plans to keep a two thirds stake in Landsbankinn, a bank created from the ruins of the failed Landsbanki) to creative ventures. |
| "What we are really trying to be conscious about is not to put all of our eggs in the same basket," she says. "We are optimistic that it will be passed and we will have a recognition that putting money into culture is also an investment." Other plans are already underway. In a bid to lure foreign investment into the $13bn economy, Iceland has upped its subsidy of films created in the country – reimbursing 20% of all films and television production costs in the country and attracting films like Ridley Scott's Prometheus, which was shot on the North Atlantic island. | "What we are really trying to be conscious about is not to put all of our eggs in the same basket," she says. "We are optimistic that it will be passed and we will have a recognition that putting money into culture is also an investment." Other plans are already underway. In a bid to lure foreign investment into the $13bn economy, Iceland has upped its subsidy of films created in the country – reimbursing 20% of all films and television production costs in the country and attracting films like Ridley Scott's Prometheus, which was shot on the North Atlantic island. |
| The shrinking of the financial sector and a total rejection of accepted political logic has made people take their fate into their own hands, according to author Andri Snaer Magnasson, during a tour of Toppstodin a former powerstation on the outskirts of Reykjavik, which since 2009 has housed a dozen micro-entreprises from underwear designers to electric race car engineers. "In Europe people are still expecting something, they are still waiting for someone to solve the problems. Here, entrepreneurial spirit filled the void," says Magnasson, who wrote Dreamland: A Self-Help Manual for a Frightened Nation. Pre-crash top graduates automatically went into finance, he said. "It is unhealthy for a country when your best brains are going into such a destructive activity. Now they are doing different things." | The shrinking of the financial sector and a total rejection of accepted political logic has made people take their fate into their own hands, according to author Andri Snaer Magnasson, during a tour of Toppstodin a former powerstation on the outskirts of Reykjavik, which since 2009 has housed a dozen micro-entreprises from underwear designers to electric race car engineers. "In Europe people are still expecting something, they are still waiting for someone to solve the problems. Here, entrepreneurial spirit filled the void," says Magnasson, who wrote Dreamland: A Self-Help Manual for a Frightened Nation. Pre-crash top graduates automatically went into finance, he said. "It is unhealthy for a country when your best brains are going into such a destructive activity. Now they are doing different things." |
| The country still faces huge hurdles, and critics warn that using a tiny nation of just 320,000 people as a model is inherently flawed. Inflation, which reached almost 20% during the crisis, is still running at 4.2%. Households are still heavily indebted (a recent article stated the collective equity of homeowners aged 31-45 has fallen from 100bn ISK down to -8bn), the krona is worth between 40% and 75% of its pre-2008 value. Unwinding capital controls is a major hurdle, while continued legal wrangling over Icesave – the ignominious online account offered by failed bank Landsbanki – hangs over the government. | The country still faces huge hurdles, and critics warn that using a tiny nation of just 320,000 people as a model is inherently flawed. Inflation, which reached almost 20% during the crisis, is still running at 4.2%. Households are still heavily indebted (a recent article stated the collective equity of homeowners aged 31-45 has fallen from 100bn ISK down to -8bn), the krona is worth between 40% and 75% of its pre-2008 value. Unwinding capital controls is a major hurdle, while continued legal wrangling over Icesave – the ignominious online account offered by failed bank Landsbanki – hangs over the government. |
| The UK has been seeking repayment of £2.35bn, plus interest, for the cost to the UK taxpayer of covering guarantees after Icelanders refused in two referendums to foot the bill after the bank's collapse. A ruling expected by the end of the year, but back in the Harpa, Sigfusson insists that Britain and the Netherlands will get their money back from the estate of the failed bank. "Creditors are receiving money already and will over the coming months and years," he says. "So there is a lot less to quarrel about in the end since the principal amounts will be covered." | The UK has been seeking repayment of £2.35bn, plus interest, for the cost to the UK taxpayer of covering guarantees after Icelanders refused in two referendums to foot the bill after the bank's collapse. A ruling expected by the end of the year, but back in the Harpa, Sigfusson insists that Britain and the Netherlands will get their money back from the estate of the failed bank. "Creditors are receiving money already and will over the coming months and years," he says. "So there is a lot less to quarrel about in the end since the principal amounts will be covered." |
| It hasn't helped discussions between the country and the EU. Talk of "fast-tracked" entry to the EU following the crash have quietened almost to silence. Polls consistently show a lack of appetite for the move among Icelanders, who prize their fishing rights and have seen the benefits of having their own currency. | It hasn't helped discussions between the country and the EU. Talk of "fast-tracked" entry to the EU following the crash have quietened almost to silence. Polls consistently show a lack of appetite for the move among Icelanders, who prize their fishing rights and have seen the benefits of having their own currency. |
| "We are not fully out of this yet, we still have work to do," says Sigfússon, as the darkness deepens around the brightness of the Harpa. "It will take Iceland some years to recover and we cannot as yet relax and say it is done," he says. "But there less reasons than ever to give up." | "We are not fully out of this yet, we still have work to do," says Sigfússon, as the darkness deepens around the brightness of the Harpa. "It will take Iceland some years to recover and we cannot as yet relax and say it is done," he says. "But there less reasons than ever to give up." |
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