Crushed ice: The global economic meltdown has left Icelanders reeling
And laid waste to their seventh-in-the-world standard of living
By: Bill Redekop
Tomas Brynjolfsson worked at Landsbanki, one of Iceland's three banks that collapsed. Now he's an economist with the country's finance department. The cranes on Reykjavik streets work at government-financed projects only. All other construction projects halted when the nation went bankrupt.
REYKJAVIK -- It's still the morning after in Iceland following one of the most spectacular financial collapses by a country. Iceland's three major banks went bankrupt in the span of a week.
The economic crash wiped out major companies, family businesses, up to a third of some people's savings accounts and brought consumer spending to a halt from which it has not recovered. Unemployment shot to nine per cent from less than one per cent in a span of three months.
An independent commission recently released its nine-volume report into the 2008 crash, dubbed The Black Book because it details the dark period in the country's history. This being Iceland, where literary appreciation is great, the report is now being considered for the country's top literacy award. One Icelander said it reads "like a post-modern detective novel."
I travelled to Iceland to learn more about recent events there and explore relations between Iceland and Manitoba.
The province has the largest population of Icelandic descendants outside the mother country. And so living in Manitoba, even if you're not Icelandic, and I'm not, you can't help but hear about Iceland through all the festivals, the place names, the cultural associations -- and the chest-pounding by people of Icelandic descent.
So while I was walking past Reykjavic's oldest cemetery on a street called Sudurgata, on my way to an interview, I found myself checking off the surnames on the ancient headstones as I went by, thinking, "I know all these names. I've been seeing these names all my life."
By contrast, a traveller I met from the southern U.S. said he'd met only one Icelandic person his entire life before visiting Reykjavik.
Iceland has garnered a spate of international headlines lately: the eruption of the unpronounceable volcano, Eyjafjallajokull, whose ash caused the largest air traffic disruption since the Second World War and cost airlines close to $2 billion; Prime Minister Johanna Sigurdardottir's recent same-sex marriage; Reykjavik-based Wikileaks and its release of American military documents on Afghanistan; the exhumation of chess champion Bobby Fischer's body to settle a paternity suit.
But it's the economic crash that's on everyone's minds here. That was clear from the recent election of comedian John Gnarr as Reykjavik's mayor. He heads the Best Party, a kind of Rhino party of civic politics that got elected in a protest vote over the financial collapse. The Best Party is an unlikely bunch that includes people such as a singer from the Sugarcubes, Bjork's former band, and a member of the musical group, Baggalutur, which toured Manitoba and North Dakota last year.
Also, just from living in Manitoba and hearing Iceland spoken of so prominently, I'd simply assumed there must be three to four million people living there, maybe five million.
The country seems built for four or five million people with a Supreme Court, a No. 1 Highway that rings the island, the Icelandic Stock Exchange, the University of Iceland, two symphonies, an opera, two large live theatres, embassies in many parts of the world, etc. In fact, just 317,000 people live in Iceland, less than half the population of Winnipeg.
Katie Parsons proves my point that Manitobans feel Icelandic by osmosis. There are an estimated 100,000 or more Manitobans who can trace at least some roots back to Iceland. She isn't one of them. But that didn't stop her from falling in love with the country.
"I had a number of Icelandic friends introduce me to the Sagas (historical prose of early Icelandic history) and show me pictures of Iceland, and, at 16, decided that's where I wanted to go," said Parsons.
So she got a scholarship from the Icelandic government to study the language at the University of Iceland. She then obtained her master's in translation. Today, Katie lives and works in Reykjavik, translating historical, business and natural history texts.
"Living here is the only place I've ever had the comment that, when I say I'm from Winnipeg, people reply, 'Isn't that south of Gimli?'"
She can't believe how frequently Iceland noses its way into global headlines either. She is now married to an Icelander, and their wedding was in the same Lutheran church she saw in a photograph at age 16 that made her fall in love with the country.
Falling in love with Iceland is not unusual. Five years ago, Meredith Knox, who is of Icelandic descent and originally from the Eriksdale area of the Interlake, travelled to Iceland following a personal crisis.
Most tourists travel with a companion, arrive in Iceland in summer when it's light out 20 hours of the day, and stay mostly in the south where most people speak English and there is more to do.
Meredith's story is Guy Maddin-esque by comparison. She arrived alone, in the dead of winter when there is darkness 20 hours of the day, and travelled to the sparsely populated north of Iceland where few people speak English -- and she couldn't speak Icelandic -- and where people are snowed in for stretches at a time.
Folks were kind and generous and allowed her to stay in a closed-up summer cabin. And yes, she fell in love with Iceland, and is still there in the north, working at the Emigration Centres, a museum that has become the Mecca for North Americans with roots in Iceland. More about that later.
Well, why not Iceland? It's very European. The winters are warmer and the summers are cooler than in Manitoba, thanks to the Gulf Stream, and there are no bugs. More than 90 per cent of the buildings in Iceland use geothermal energy, taking advantage of shallow magma -- that spurts out of the mountain tops occasionally -- to heat the water. That makes Reykjavik a smoke-free city.
However, the wind is always blowing. "The wind throws me off the most," said Meredith. "The wind can make you crazy after five or six days."
I would also say this, at least about Reykjavik. Being a police officer, firefighter or ambulance driver in the city of 200,000 may be the slackest job. I didn't hear a single emergency vehicle siren in my week's stay.
The feelings of Manitobans toward Iceland are reciprocated. Tell someone that you're from Winnipeg or Manitoba and people respond warmly. If they're not confident in their English, they'll just say, "Ah," and smile.
People here call North Americans with roots in Iceland the Western Icelanders, and Manitoba is the epicentre of West Iceland. Every Icelandic prime minister makes a pilgrimage to Manitoba, as the current one will do this autumn.
"People here hold Gimli in high esteem. If Icelanders go to Canada, they have to go see Gimli," said Kent Bjornsson, a former Gimli resident who has lived in Iceland the past 10 years and works in technical support for public education. He also runs tours under the company name, Nordictrails.
Before the crash, there were a half dozen or more private jets parked on the island. Now there are none.
Iceland went from having the seventh highest standard of living in the world to, well, no one's keeping track now.
Before the crash, Icelanders were riding in style, filling the motorways with BMWs, Audis and Range Rovers. After the crash, people who didn't own Range Rovers started calling them Game Overs.
On the first Monday of October 2008, two of Iceland's three banks went under, and the third followed shortly after.
Where was the money? People in Iceland wanted to know. A metaphor heard on the streets in Reykjavik is that a handful of people running the banks "vacuum cleaned" out all the cash.
Iceland's government moved quickly to take over the three banks' domestic accounts and protect Icelanders' deposits. But depositors and investors from abroad, such as those in Britain and Holland, were left to fend for themselves.
The consequences of the crash touched everyone.
For example, about 40,000 Icelanders had loans indexed to foreign currencies averaging $50,000 (Cdn) each. The value of the krona crashed with the banks, doubling those loans. The borrowers owed, on average, more than $100,000 each.
At least they did for 18 months, until the Supreme Court of Iceland ruled that the foreign currency loans are illegal. That's fantastic news for those loan holders, of course. But someone still has to pay back the loans that doubled, and the government now owns the banks. Taxpayers who avoided the foreign currency loans will likely shoulder the cost of those loans now.
Inflation soared after the crash. Within three months, Iceland's inflation was running at 18.6 per cent.
Another consequence concerned the practice of taking out loans to invest in the Icelandic Stock Exchange. The ISE saw its market capitalization soar to 150 billion kronas. The crash wiped out 95 per cent of the ISE's value.
While Iceland's government protected people's deposits, it didn't protect everything. Many people had moved their savings into money market funds prior to the crash -- on the advice of the banks.
Just before the crash, Iceland banks launched a campaign urging customers to move their savings into the fund. The banks hired students to phone clients at home and warn them the government protected only the first 20,000 Euros (about $27,000 Cdn) in their savings accounts. The banks told their depositors that their money would be safe and earn a higher return in a money market fund.
When the banks went kaput, Iceland's government moved to protect people's deposits but wouldn't protect money market funds. People lost one-third of their money. More than 15,000 depositors are now trying to get their money back through the courts.
Hordur Hilmarrson, a former soccer star who runs travel agency, IT Travel, lost money from his personal and business account. He claims the banks pitched the money market fund as a savings deposit. He alleges the banks targeted seniors born in 1947 and earlier to transfer their savings deposits into the special fund.
"These people worked all their lives and had one-third of their life savings taken away," said Hilmarrson.
Another person who lost money in the money market fund was Steinthor Gudbjartsson, a reporter with the daily newspaper Morgunbladid. Gudbjartsson lost his job after the crash and moved to Manitoba, where he has connections. He has since been rehired by the newspaper.
Gudbjartsson, his wife, and daughter all moved money into the money market fund at the bank's urging. Their combined loss was about equal to his annual salary, he said. It was Gudbjartsson's daughter's first experience with banks, and he doesn't know if she will ever trust one again.
However, he considers his losses minor compared to what many people are going through. Many people lost jobs for the first time in their lives. Other Icelanders who kept their jobs have had to take pay cuts in the 10 to 15 per cent range.
For a typical Icelander, the crash will likely mean postponing retirement for years. For some, it could mean repossession of their cars. For others, it could mean the loss of their homes.
Homeowners who can't pay their debts are allowed to stay in their homes until October. If nothing changes, the properties will be sold to cover their debts.
Many retail businesses collapsed. When the cushion residents had in the bank vanished, consumers stopped spending. Many restaurants have folded, including all three McDonald's. Only one Pizza Hut is still open. Construction is down to nothing except what is financed by the government.
So there it is. The banks were telling people what to do and people were doing it. Take out foreign loans? If you recommend it. Transfer idle savings into a money market fund? OK, I guess.
Before the crash, Iceland's gross debt was 30 per cent of Gross Domestic Product (the value of all goods and services produced in an economy). Today, the gross debt is 120 per cent of GDP.
A trip to the old homeland is popular with many Western Icelanders, also known as Manitobans. But it's not just people of a certain age who do a salmon run back to their origins. Young people are being engaged, too, thanks to what's called the Snorri Program.
The program is named after Snorri Thorfinnsson, the first European child ever born in North America after Icelander Leifur Erickson landed in Newfoundland about the year 1000.
The Snorri Program's mandate is to strengthen relations between Iceland and Western Icelanders by mutual visits. It helps bring Western Icelanders back to Iceland to experience their history in a deeper way, said Almar Grimmson, president of the Icelandic National League, one of the main sponsors of the Snorri Program.
Two students from Winnipeg in the Snorri Program this year were Kristjana Britton, 19, and Christine Schimnowski, 18. Part of the program is to live for three weeks with an Icelandic relative. So Britton stayed with descendants of her great-great-grandmother's brother. Snorri kids also visit their ancestral homestead.
They also take language classes and study Icelandic history and nature for two weeks, including visits to museums. The final week is an adventure tour around Iceland, including climbing Drangey (Cliff Island) and hiking glaciers.
"I've been blown away by Iceland. In awe," said Schimnowski. "Everything is so well preserved, and so beautiful."
A final stop for Snorri kids -- and for me -- was the Emigration Centre in Hofsos. At first you wonder what this museum is doing way out on the northern coast of Iceland, a five-hour drive from Reykjavik.
Years ago, local carpenter Valgeir Thorvaldsson started restoring a 1777 building in the dying town of Hofsos. He continued restoring buildings as a hobby and then decided to add a museum. After all, it was from northern Iceland that most people emigrated.
People in Reykjavik thought putting a museum in Hofsos was crazy and wanted it for their city. But Thorvaldsson won out, and travelling to northern Iceland is now a must for Western Icelanders. It deepens their experience.
And what a museum. It's in several restored buildings. The climax for me was the building that houses old family photographs of Western Icelanders along with their stories. They are mostly studio photos taken shortly after families arrived in North America. To think, this exhibit was made by a man in Riverton named Nelson Gerrard, an Icelandic genealogist.
It's an extraordinary exhibit, and one that every cultural group in Manitoba should see and try to copy. As I said, I'm not Icelandic, but still, I felt chills walking through the rooms, studying the archival photos and reading the family stories. What would their lives be like in the new world?
bill.redekop@freepress
Aug 7, 2010: When Iceland's economy heated up, the cash went up in smoke