Page last updated at 23:54 GMT, Friday, 9 October 2009 00:54 UK

Anger as Iceland battles to recover

Vatnajokull lagoon
Iceland's booming tourism industry has helped bring in vital foreign currency

By Ingibjorg Thordardottir
BBC News, Reykjavik

A year ago this week Iceland's economy collapsed along with three of its biggest banks. Since then the country has been struggling to recover and there is still a long way to go.

The setting is a restaurant with a stunning view over Reykjavik's harbour. But even in this idyllic location the effect of the recession - or "kreppan" as the Icelanders call it - is all too visible.

Blocking some of the view is the massive concert hall which was supposed to be a symbol of prosperity overlooking the Faxafloi bay. Its first concert was to take place in December this year but since Iceland's economy collapsed, construction on the building has come to a halt.

Reykjavik Concert Hall
The Reykjavik concert hall will not open until 2011

It is now a forlorn sight as it lies unfinished in one of the capital's beauty spots.

Back in the restaurant the discussion keeps drifting towards the recession - in fact, in Iceland the talk is of little else.

Perhaps that is not surprising since there is hardly anyone in this society of just over 300,000 people that has not been affected.

'Viking' blame

Prices have soared since the value of the krona halved. At the same time wages have gone down and many have lost their jobs.

Loan repayments have doubled for most people - especially those who borrowed in a foreign currency.

And foreign currency is a big issue. Icelanders have gone from having almost unlimited access to it to severe rationing - something, one man pointed out, that they share with Cuba.

Ogmundur Jonasson
We want to pay our debts - but we want to pay what we are responsible for and no more
Ogmundur Jonasson
Former health minister

Now if you want to buy foreign currency you have to show a valid airline ticket to the country you are travelling to - and even then the amount is limited.

So Icelanders are still very angry about the situation.

They blame everyone from Britain and its Prime Minister Gordon Brown, to the EU to the big Icelandic investors - sarcastically referred to as the "Vikings" - whose antics abroad are considered to be a big catalyst in Iceland's downfall.

And many of these so-called Vikings have felt the full force of that wrath. Their cars and houses have been vandalised - a level of violence unheard of in Iceland for many decades.

So far no-one has been arrested but most Icelanders do not condone such extreme behaviour, inflicted by what is thought to be just a handful of people. They prefer to voice their frustration in a more constructive manner.

Crippling debts

The biggest issue of all is Icesave. When Landsbanki's saving accounts in the UK and Holland collapsed last October it left Iceland with a bill of around £4bn ($6.3bn:4.3bn Euro).

On a global scale, that is barely worth a mention but for this tiny nation the repayments of the UK loan will be crippling.

There is clear evidence that the nation believes free capitalism has completely failed
Prof Stefan Olafsson

Although there are people who believe Icelandic taxpayers should not be footing the bill for the collapse of a private bank, more are saying that Iceland needs to meet its obligations.

But just what these obligations are has sparked a big row. A few weeks ago the new leftist government was shaken when one of its ministers walked out in protest at the government's handling of the case.

Ogmundur Jonasson, the former health minister, believes Iceland should take its case to the courts to find out just what the repayment obligations are for a country whose whole banking system has collapsed - a move he says has been blocked by the British and Dutch.

"We are experiencing the worst of British behaviour - that of the colonial power - instead of the best that Britain has to offer, which is fairness and democratic traditions," he says.

"We are devastated by the collapse of the banks and their irresponsible behaviour makes people here angry and bitter. We want to pay our debts - but we want to pay what we are responsible for and no more."

Return to welfare

Financial support from other countries and organisations such as the IMF - and membership talks with the EU - are conditional on Iceland solving the Icesave dispute, which is why it has taken up most of the government's time.

Lakagigar, Vatnajokull, Iceland
Iceland's natural beauty has attracted more tourists since the collapse

Some say too much time has been spent on it and too little focus has been on the other big problems Iceland faces, such as increasing household debt.

Prof Stefan Olafsson from the University of Iceland says the government needs to finish the Icesave deal so it can start helping the people of the country.

The crisis has also caused a radical U-turn in people's views of society.

"There is clear evidence that the nation believes free capitalism has completely failed and now wants to focus on the Scandinavian welfare model," says Prof Olafsson.

But it is not just capitalism that Iceland has turned its back on.

Icelanders' attitude to the European Union has similarly changed.

In the weeks after the crash there was huge support for EU membership but as the Icesave row has dragged on many have started blaming the EU.


It is not all doom and gloom in Iceland - Prof Olafsson points out that the vast majority of households are likely to get through the crisis without needing government help.

Many of the traditional industries such as fishing, energy and wool knitting are also coping well.

But it is tourism that has seen the biggest rise, with many foreigners taking advantage of the weak currency.

A spokesman for Iceland's biggest national park, Vatnajokull Park, said it had had around 350,000 visitors so far this year, an increase of around 30% on last year.

Many also see the recession as an opportunity.

In a picturesque valley in the middle of Reykjavik a group of entrepreneurs has taken over a huge old power station and transformed it into what they are calling a "greenhouse for good ideas and design".

"We want to look ahead and utilise the wealth that lies in Icelandic entrepreneurship and creativity in the coming years," said Gudrun Ingvarsdottir, an architect and one of the creators of Toppstodin.

So in many ways Iceland is starting to feel like the Iceland of old - where the emphasis is on hard work, creativity and good values and less on making quick money.

But it is clear that this small country will be paying for its flirtation with free capitalism for many years to come.

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