The Viking Economy Saga

 By Tom Bowes

The love of freedom and independence has always been a characteristic of the Icelandic people. Iceland was originally colonized by free-born chieftains who would rather live and die in isolation than serve a foreign king.  - Halldor Laxness, Nobel Laureate and iconic Icelandic author

It is not difficult to imagine when GM and Chrysler are being driven to bankruptcy and AIG and Lehman Brothers can no longer be banked on, the impact on a country’s economy would be staggering. But what happens when an entire nation goes suddenly bankrupt? Such is the sad case in Iceland, a rugged island pressed up against the Arctic Circle. Iceland is a tiny nation with a population of just over 300,000, about half of which resides in its capital Reykjavik. Just before its collapse, this country of farmers and fishermen was considered the wealthiest country per capita in Europe, even though their economy was about one-tenth the size of Google’s net worth.

It is easy to brush off the collapse of a tiny economy of a no-mans-land in the middle of nowhere. Who really cares? Well I do, enough to visit it and find out more about this quirky place. If an economy can collapse there, why not here? Are there not lessons we can draw on? Even though this is like no other place I’ve visited, Iceland’s history and recent events there exhibit some familiar patterns.

Much like Easter Island, early settlers deforested Iceland. The superior sailing skills in the Viking Age however made it relatively easy to sail to neighbouring islands to plunder and kill anyone in their wake. They didn’t stick around, they simply took what they needed. Their marauding lifestyle eventually abated but it seemed to instill a culture of recklessness that carried forward to the current economic crisis.

Iceland’s Viking history is a bit ironic considering it lays claim to the birthplace of the democratic system of government. The present-day parliament is a modest two storey stone edifice that would look like a small house in Rosedale or Westmount. The bouncers at the pubs are more imposing than the security guard at the door. Apparently, the Prime Minister of the oldest parliament in Europe is very accessible. Simply walk in and make an appointment with her.

There are no slums here, and I saw little evidence of excess. Going back as recently to the late eighties, you would be hard pressed to find a beer in Iceland and with no day-time television, it is no wonder the country currently has one of the highest literacy rates in the world. Iceland has an absurd per capita ratio of authors and poets. The first stories written in narrative prose, the medieval Icelandic Sagas prefigured the literature of the modern world. The Sagas were written by Icelanders for Icelanders. They were, and perhaps still are, the very essence of how Iceland created itself and sustained itself.

One of the last places settled on Earth and the youngest country in Europe speaks the oldest living language. Icelandic is spoken no where else in the world and here, everyone speaks it. They also all speak English. It turns out, a country with multilingual, well-read and intelligent citizens also makes for a safe place to live. The crime rate is almost non-existent, the most heinous of which is disorderly conduct. To give you a better idea, this is a place where criminals get to go home for the holidays.

Aside from their literary and linguistic accomplishments, Iceland was not a cultural fun spot. Hotels and restaurants were not abundant, nor appealing, and then there’s this matter of 24-hour darkness for months on end. But something magical happened in the 90s when enough people discovered that there was 24-hour daylight in the summer. High fashion, swanky restaurants, funky artists, and a night-life of hedonistic debauchery that makes New York look like Boise, quickly made Iceland the place to be. Their economy was scorching. Iceland was hot.

But now ... it’s not. As it was elsewhere, the wealth everyone was enjoying was built on massive debt, and when reality came crashing down, it quickly became a modern and tragic saga.

The peaks and valleys of Icelandic well-being matched the ineffable landscape of fjords and lava fields. Hissing steam coming out of the ground next to ancient glaciers makes Iceland an obvious place of otherworldly extremes. The North American tectonic plate and the Eurasian plate rip right through the middle of the country and generate regular earthquakes. Iceland has the largest glacier in Europe and its many volcanoes are still very active – two of the top ten largest eruptions in world history happened here. When an eruption happens under a glacier it creates a meltdown that is unfathomably destructive. Everything in its path gets washed away to sea, and what remains are vast fields of black lifeless sand and rocks that pockmark the landscape. The fiscal meltdown that happened here was no different.

The combination of a highly deregulated financial system, a giddy participation in the global casino of currency exchange and a central bank asleep at the switch resulted in all three national banks collapsing leaving a foreign debt of $60 billion in a country with a GDP of $20 billion. While the massive U.S. economy can absorb big blows, the economy here was so small that the irrational exuberance had little to oppose it. Vikings do not have safety nets. When the value of your currency falls 30%, the central bank rate rises to 18%, unemployment goes from 1% to 15% and the economy is predicted to fall 9.6%, safety nets are handy to have around.

The IMF has come marching to the rescue by extending the repayment of debts and the requirement of paying only the interest for the next seven years. Realizing the principal is still there to be paid after seven years is not sitting so well with the majority who have lived their lives within their means. Besides, having so much independence within their collective soul, help is a very tough pill to swallow. The IMF is the foreign king Laxness refers to, that future generations will have to serve. Many believe what the IMF is offering is a raw deal and they should simply walk away from the treaties that protect foreign investors who placed their savings in Icelandic banks. With recent inclusion in to the European Union, walking away was never a likely outcome. Icelanders are faced with a reckoning that is leaving a horrible taste in their mouth. Should we presume that we are exempt from such a reckoning?

While most other Western economies are significantly deeper and Canada is looking relatively good from the crisis only because of its highly regulated banking system, I see little difference from the ‘deal’ Iceland struck that creates a massive debt to the massive deficits we and other G8 countries are building to ‘stimulate’ our economies. We are using the problem that got us all in the mess we are in, as the solution. In the end, future generations will be paying for our unsustainable ways.

Last year, the United Nations rated Iceland the best country in the world to live and the fourth ‘happiest’ country. But as the most overused line in travel literature states, Iceland is a place of contrasts – a land of fire and ice; reckless Vikings and a woman prime minister who is the first openly gay head-of-state; a party town that is really quite angry; a visionary country that proclaims they’ll be off fossil fuels by 2050 and a land of short sighted greed that got so many in trouble. My hope rests with Johann, a fellow I met at the Karamba bar on the main strip. He said “I hope that this crisis will teach Icelandic people what happiness truly means. This will bring back old Iceland, where family and friends in the close-knit society were more important than coins and papers."

Icelanders like Johann who have real jobs are left holding the bag of debt that the few beneficiaries who pushed money around created, but they are a hard-working and resilient lot. In Iceland, everyone knows the names of those responsible for the downfall and be assured, they have left town. The ‘exit plan’ of the white-collar criminals who benefited from Iceland’s demise was consistent with that of their Viking predecessors, and when they are brought to justice, my guess is they won’t be going home for the holidays.