Crisis sees Icelanders tighten belts as solidarity soars

Crisis sees Icelanders tighten belts as solidarity soars

6th May 2009, Comments 0 comments

As the formerly booming country reels in the face of a collapsed economy, many Icelanders are banding together to help each other through tough times.

In the windy capital of Reykjavik where two-thirds of Icelanders live, there's not a homeless person in sight and no telltale signs that the economy was brought to its knees six months ago.

But away from the capital's trendy stores and restaurants, Icelanders have tightened their belts and are showing more solidarity with those now in need.

Iceland was rolling in money before the North Atlantic nation's three major banks collapsed and plunged the country close to bankruptcy -- a crisis that led to a snap general election to be held this Saturday.

Now many people feel like "they've taken a step back, like they've returned to the 1970s or 1980s," said Gunnar Haraldsson, the head of Iceland's Institute of Economic Studies.


 An elderly man feeds ducks, pigeon and seagull in Reykjavik center on 21 April 2009.

"For people who still have a job, nothing has really changed, except they don't travel that much,” said 35-year-old customs officer Urnur Kristjansdottir. “They go abroad less and they spend less money in their daily life."

Yet, this mother of three children under the age of 10 is not worried about the future and suggested that the crisis has made Icelanders more "reasonable" again.

The country became one of the world's richest with one of the highest living standards as its banks and financial tycoons expanded abroad to conquer foreign markets as boldly and aggressively as their Viking ancestors once did.

Expansion, contraction

In 2007, Iceland's economy grew by 5.5 percent, making it the envy of Europe as its gross domestic product (GDP) per capita soared to nearly 65,300 dollars (50,300 euros).

But in 2008, growth was down to a meagre 0.3 percent and per capita GDP fell by 20 percent to 52,000 dollars, according to official statistics. The Icelandic currency was in freefall after the crisis erupted in October.

The situation is expected to worsen dramatically this year, with an economic contraction of 10 percent and unemployment set to hit 10 percent by the end of 2009.

Reykjavík shipyard © Atli HarðarsonThis would put it closer in line with jobless rates in the European Union but comes as a shock here, where unemployment tripled in the first quarter from 2.3 to 7.1 percent, according to Statistics Iceland. Iceland is not currently a member of the EU.

Signs, small and large

Valur Gunnarsson, a taxi driver in his 50s, says private sector employees no longer take taxis the way they used to, opting instead for public transport buses to save money.

Haraldsson agrees that there are some small changes occurring. "There are signs that the crisis is there," he said. "With the unemployment rate, some households now have to get help from charities. But they are a minority."

At the same time, prices for consumer goods, which for the most part are imported, have soared. The inflation rate swelled to 15.2 percent in March -- a heavy blow for all Icelanders but especially for the growing number without jobs.

Household consumption has dropped sharply since last autumn and shows no sign of picking up, with the finance ministry forecasting a fall of 24.1 percent this year.

Haraldsson said the main problem for households is paying back loans taken in currencies other than the Icelandic krona, which saw its value fall by 44 percent last year.

"For households and companies that have loans in foreign currencies, it's a catastrophe," he said, noting that around seven percent of mortgages were in yen, dollars or euros.

In the suburbs outside the capital, a number of newly-built homes stand empty.

Banding together

But Icelanders are taking it in stride and helping each other weather the storm.

Parents invite their grown children round for dinner, grandparents help support their grandchildren and some young families have left Reykjavik to resettle back in native towns in the countryside, some even moving in with their parents.

Graphic detailing elements of Iceland's devastating economic and financial crisisOthers who worked abroad, like 32-year-old Hinrik Hansen, have returned home.

A former salesman for a fish and meat import business in Germany, Hansen moved back to Iceland four months ago.

"I decided to open a bar in a suburb of Reykjavik,” he said. “It's very challenging but I couldn't leave my family in trouble here and stay in Germany.”

In tough times, we should stand up and stay united together, Hansen added. "We have experienced crises before, perhaps not at this level but we've always gotten through them."

For economist Haraldsson, not all is negative.

"Our society is maybe a better one today than it was in 2007,” he said. “We have no money but people are displaying greater solidarity."

Delphine Touitou/AFP/Expatica

Photo credits: Atli Harðarson

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