Friday 13 December 2019

Icelanders shun financial wizardry and return to what they do best

Mia Shanley

IN the small Icelandic village of Grindavik, sailors are making double their pre-crisis pay, haddock sales to places like Boston and Brussels are booming and unemployment is almost zero -- signs of this island's surprisingly rapid rise from the ashes of banking ruin.

While Europe wallows in recession, the economy of this mid-Atlantic island is growing thanks to a currency fall -- in which the crown lost almost half its value to the euro -- an export and tourism boom and growing consumer confidence.

"This is probably one of our best years," said Arnthor Einarsson, a fisherman readying his boat for his next catch.

Only a few years ago, a banking boom in which the sector's assets grew to 10 times the country's GDP lured many of Iceland's 320,000 population from traditional industries into the world of finance. Fishermen got into banking and sailors speculated on booming real estate.

Those heady days have gone. Gas-guzzling Land Rovers have been replaced with fuel-efficient Volkswagens, a sign perhaps of a more sober consumer mood. The wounds that sparked massive street protests against the financial elite are slowly healing. Even the then prime minister has been tried by a special court, closing one chapter.

Iceland's GDP growth, estimated at 2.6pc this year, will outshine even powerhouses like Sweden.

Currency depreciation though is only part of the picture. Capital controls, progressive taxes and a careful phasing-in of austerity measures were also key to getting the country back on track.

Iceland also did what other parts of Europe haven't dared to do -- let its banks go under. It took some of the cost itself but forced foreign creditors to take the biggest hit.

Three years after its near meltdown, Iceland looks healthy on many measures. It successfully finished an IMF bailout programme and has already made one early repayment. It expects the sale of assets from failed bank Landsbanki to cover its $5bn (€3.8bn) in debts to Britain and the Netherlands.

In February, Iceland recovered its investment-grade rating from Fitch, which praised the country for restoring macroeconomic stability, adding to investment-grade ratings from Standard and Poor's and Moody's Investors Service.

While signs point to recovery, many remain cautious about the future and bitter over the past.

Household debt exceeds 200pc of GDP.

There is little trust in government three years after the fall of ex-Prime Minister Geir Haarde. Parliament has the support of only 10pc of the public, polls show.

Pall Matthiasson, chief executive of mental health services at the National University Hospital of Iceland, says Icelanders remain in a state of depression. Many just want a clean slate.

That can be seen no more clearly than in recent polls which show a surprisingly strong lead for presidential candidate Thora Arnorsdottir, a fresh-faced mother and journalist who is due to give birth to her third child.

In an election due at the end of June, the 37-year-old goes up against President Olafur Grimsson, who is running for a fifth four-year term having a few years back cheered on those who drove the country's banking expansion.

Haarde's trial, she says, was difficult for the nation.

"Instead of being a step towards reconciliation, it has been more an opening up of wounds," she says.

In the months ahead, Iceland will bring former banking executives to stand trial, so the pain is not over.

Icelanders will meanwhile get on with their recovery.

"Did Icelanders have an identity crisis? Yes," said Egill Helgason, one of Iceland's television commentators. "They thought they were financial wizards, but it was all an illusion... Now it's back to books, music, and, well, fish." (Reuters)

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