ICELAND ONE - FEB 2009

By Brian Carroll

in Reykjavik

The pure white snow is trampled to a concrete grey outside the food shelter in Reykjavik.

The temperature hits minus nine degrees as, throughout the afternoon, more than 400 people line up for free parcels of fish, mince, cereal, bread, and milk.

In the queue are Icelanders who park their pride with their 4x4 jeeps; Poles and Lithuanians who have lost their construction jobs; Portuguese women who used to work as nannies for Iceland’s working mothers.

Hrafnkell ‘Gauti’ Hakonarsson, 60,  queues for a hand-out for himself and his 44-year-old wife, Fammy. They have no job, no pension, no home, no car, and welfare payments so woefully inadequate they have to change their rented accommodation every month, downgrading as they go.

Homelessness is illegal in Iceland, as is begging. Gauti is not ashamed to admit he could soon be guilty on both counts.

“I haven’t eaten for a day and a half, so my wife can eat,” he says. “I was a taxi driver for 24 years. After the banks collapsed, people stopped taking taxis. The clubs used to be full from 1am to 7am. Now very few go out, and they walk home for miles in the snow because they can’t afford a taxi. My wife was a hotel cleaner, but only 15 guests came in January, so she lost her job yesterday. Our rent is due, we don’t have any money.”

Home this week is a hotel room – with the severe decline in tourists, some hoteliers now rent rooms by the month to people like Gauti.

He stands in the silent queue for food inside the Mothers Support centre, surrounded by people aged 16 to 88.

There are many eastern Europeans, but also well-dressed and well-spoken Icelandic men and women. They cover their faces and ask in perfect English not to be photographed.

Danila Alexandra’s face is proudly defiant as she walks to her Mercedes, but the white plastic charity bag is a badge of shame.

The 35-year-old mother of two has been living in Reykjavik for ten years, working as a waitress: “It’s been very hard. I cannot work. I have nothing but the food they give me here. This food is for my children. There is another food shelter and I go there too. There are a lot of people there.”

This is the New Iceland, where, as the infamous joke would have it, Ireland is headed, unless we can turn our economy around, and fast.

Like Ireland, where 3,000 Poles a week are going home, Iceland’s immigrants are fleeing -  abandoning houses they bought with mortgages they can no longer afford. They leave the keys in the door.

Many board ferries in the big cars they bought with easy credit. The cars are almost worthless in Iceland now, so the banks will not chase them.

Murik is a Polish national who came to Iceland ten years ago: “I lost my construction job a few months ago. I don’t see any future for Iceland. Only for my seven-year-old daughter who has started school here I would leave. I come here for free food, because my rent costs more than the welfare benefit I get.”

When you listen to the stories at the Mothers Support centre, it’s like Ireland and Iceland were operating in some parallel universe. Poles and Lithuanians came to Iceland to work in construction, to serve in shops and bars, doing the cleaning jobs Icelanders left behind as they moved up the value chain. Meanwhile Icelanders became double income families as they flocked to get on the property ladder. The price of an average home tripled from 20m Kronas in 2000 to 60m (E400,000) at the beginning of last year. Iceland’s young saddled themselves with huge mortgages, car loans and credit card debt. But it was a calculated bet: in 2007, Iceland was the fifth richest country in the world, and, according to the UN, the number one in the world for quality of life.

The developers and the banks chased this new Klondike,  flooding the market with 90% mortgages and an oversupply of apartments and houses. The Government encouraged the spiral, by telling people to convert their savings into Government bonds. But the developers and the banks were, for all intents and purposes, the same people.

“It all started when the Government privatized the banks around 2002,” explains Karl Blondal, deputy editor of Morgunbladid, Iceland’s leading newspaper.

“Two families more or less own Iceland.”

The Johannesson and Gudmundsson families bought the Glitnir bank and Landsbanki respectively.  They owned the banks, but at the same time they were the very people borrowing all the money to feed the beast that Iceland’s economy had become.

They were literally lending money, borrowed cheaply off other banks internationally, to themselves. This was a game of global monopoly where they could always pass  Go.

Iceland was too small for their voracious ambition, so they used cheaply financed overseas debt to fund a global expansion. From West Ham FC and prestigious stores like Hamleys and the House of Fraser in London, to the American retail giant Saks, to mobile phone companies in Bulgaria and Russia, their Viking empire spread far and wide. But it was just a chimera. An illusion built on the quicksand of cheap credit and mounting debt.

“Really it was like a giant pyramid scheme and one day the whole thing came down,” says Blondal.

Over 125 Icelandic companies went bust in January. The latest to go into administration is the Baugur Group – the investment vehicle used by Jon Asgeir Johannesson to build his global empire. Baugur means ‘ring’, and with Johannesson’s companies employing 55,000 around the world, he used to be called the Lord of the Rings. He has now been slain by the forces of the international credit crunch.

Swansvis Wicher, travelled from the Philippines to work in Iceland over ten years ago. She works as a hotel receptionist and puts the problems succinctly: “We were all living on credit. It was just a fantasy.”

She points to a new four-floor glass building that is being extended to three times its original size.

 “That is the only place in Iceland where they are building and growing.”

The building houses the offices of Intrum Justitia –  debt collectors.

The developers and the financiers and the two Icelandic families controlling everything didn’t believe the money flow would ever stop. But, in Warren Buffett’s phrase, it was only when the tide went out, that Iceland learned who had been swimming naked.

They didn’t believe the music would ever stop, but today the cranes are silent, while thousands of half-built houses and apartments dot the suburbs of Reykjavik, their unfinished shells like post-apocalyptic monuments to a cataclysmic greed.

With Iceland bordering on bankruptcy, the IMF has put together a E4.5bn rescue package. But Iceland’s currency is effectively dead in the water. They must either join the EU or form a currency alliance with their Nordic neighbours.

Before the banks crashed last October, ordinary Icelanders could buy one Euro for 90 Kronas. Today they have to raise 150 Króna for a Euro. For a country that imports most of its foodstuffs, it’s crippling – food prices have risen by 27% in Bonus, Iceland’s equivalent of Lidl. In addition, most of the people who took out mortgages and car loans did so by taking the loans in a mixture of Euros, US Dollars, Sterling, or Japanese Yen. Now their repayments have almost doubled because of the currency collapse.

Last October the Icelandic banks collapsed, owing E53 billion in overseas debt. As with Anglo Irish Bank, the three main banks in Iceland were nationalised, saddling  taxpayers with the debt. The debt is 15 times the amount of money Iceland needs to run its schools, hospitals, roads, and welfare programmes for a year.

Put in its starkest terms, the government will run out of money to pay for unemployment benefits and welfare this summer.

Already the cutbacks are taking place.

Gauti’s dole payment went from 130,000 Krona per month, to 45,000 Krona ( E300). The average rent in the city is E160 a month.

 “They had no explanation about why we got less money. Now we have to move somewhere else. It’s just one room we live in, but I can’t afford the rent,” Gauti said.

Karl Blondal says, that just like in Ireland, the warning signs were there about an overheated economy, a property bubble, and unsustainable debt: “I’m not an economist but I remember before the banks collapsed looking at these outrageous figures of overseas debt and thinking, one day you have to pay it off. How are we going to manage now?

“The banks were allowed to become too big for the financial system that we have. We have a financial regulator and the national bank, which is supposed to monitor the banks. The regulator has lost his job, and the prime minister has asked the Governor of the Central Bank to resign.”

The people outside the Mothers Support centre are angry, but restrained.

Vigfus Sigurdsson provides security at the centre, but to date people have queued in orderly fashion.

“A year ago, this place was only for a handful of people. Now you have people aged 15 to 90. Last week I was talking to a 16-year-old single mother. She had no job, no house, no money. She has no-one and nothing.”

Most in the queue are renting, but some have their own homes, just no money to pay the bills, or feed their children. On a micro-level, they are enduring the very liquidity problems that have paralysed the three major Icelandic banks, and banks across the world, including Ireland.

Today, for the 18th Saturday in a row, Icelanders will protest outside Parliament buildings in Reykjavik, led by women banging saucepans and kitchen utensils. This “Saucepan Revolution” is gathering pace. Elections were not due until 2011, and no-one in power had resigned, but the groundswell of protesters eventually forced the old conservative party to step down. Elections are scheduled now for May. An interim government is in place comprising a left-wing coalition of Social Democrats and Greens, with a lesbian prime minister, and the International Monetary Fund in control of the purse strings. Like much of Reykjavik in 2009, it is strangely surreal.

The people trudge through the five hours of daylight like zombies unearth in a land far far away from their old world of bespoke arugula salads and take-way Americanos. All the shops in the main shopping street of Laugavegur have sales, with discounts of up to 70%.

Thor Jonsson, runs Odyrt, which translates as Cheap. His clothing range includes items costing between E1 and E30..

“We get a lot of families coming in, people who have lost their jobs, looking for cheap clothes. I just opened up in November because people need cheap clothes, and the rent here is a lot cheaper now than it was.”

As in Ireland, retail premises are going bust every day.

Yet bizarrely, the ruling elite still cling to the vestiges of their old life. Less than two miles from the Mothers Support food refuge, Thrir Frakkar, one of Iceland’s best restaurants, is booked out. The diners enjoy their smoked Puffin starters and Whale steaks, while Gauti and his fellow strugglers ration their weekly food from Mother’s Support.

Ingvar, an unemployed fisherman, tells me he is heading for Norway. He used to spend ten months at sea, and says he longs to once again sleep under the stars.

Issac Newton is famous for his Laws of Motion, but in his day he lost his fortune on the South Sea investment bubble. Newton’s conclusion seems apt: “I can calculate the movement of the stars, but not the madness of men.”

ICELAND - CASE STUDY

By Brian Carroll

The queues inside the unemployment exchange start to form before 9am.

Helga Benediktsdottir is standing with her friend and business partner, Elin Kvartansdottir, looking strangely displaced.

Helga, 59, and Elin, 53, are both architects. Since October they have seen their business, which employed 28 people and had an annual turnover of E1.7m, go bust.

Yesterday was their first day to sign on for unemployment benefits. They stand in the crowded room, clutching a white registration form, looking up at numbers flashing on an electronic board. They are numbers now, not names. Numbers 19 and 27 in the queue for help.

“We had an office. We had 28 people working for us and now they are all gone,” Helga says.

“It just happened overnight. We had huge projects going on,” Elin says, “We were working on Government jobs, designing schools, council houses and a power plant. We were working on private sector jobs, but they just came on the third of October and told us to stop.”

Helga wraps the fur hood of her designer coat about her, and shakes her head: “In August and September, we couldn’t get any money in. People weren’t paying us. We thought it was the summer when things slow down, but it was companies running out of money. Then in October the banks collapsed.”

“Today is our first day here. It’s very difficult but there is a kind of solidarity among the people, because we are all in the same boat together. The only thing is when you hear the politicians talking, you feel they want us all to get in a boat and row somewhere away from here,” Helga says.

Her husband works for 365 Media, an entertainment company but he has also lost his job.

“We have one daughter, but thank God at least she is grown up now. I have two grandchildren though.

“People are furious, that’s why the government was ousted. People are so angry because the currency just collapsed. We are paying double for everything.”

Elin is divorced, with three adult children, aged 18 to 23. “The Government is trying to say it was the whole nation that did this, but it was just a group of people, less than 20 people who did this. Now, what do I do? I used to work in Denmark, but they are laying people off in their thousands there too. Icelanders are not very popular there. They are being booed in the shops.

“I looked on the internet for architecture jobs, but the only job was in Dubai. My daughter still lives with me. I have a loan on my apartment which has doubled. If we don’t get any compensation or help, I will go bankrupt. I’m so outraged. I’m so angry. Probably I will lose my apartment and I will be on the street.”

Outside the exchange, as Helga gets into her VW 4x4, she stops to ask about Ireland. When she hears about Anglo Irish Bank being nationalised, and the share collapse of AIB and BOI, she nods at the familiar signposts.

“And you have 300,000 unemployed, Jesus Christ, that is the population of Iceland. How did this happen?”