[Marxism] "Stunned Icelanders Struggle After Economy's Fall"

[Fred Feldman]

STUNNED ICELANDERS STRUGGLE AFTER ECONOMY'S FALL By Sarah Lyall

New York Times
November 9, 2008

http://www.nytimes.com/2008/11/09/world/europe/09iceland.html


REYKJAVIK, Iceland -- The collapse came so fast it seemed unreal,
impossible.  One woman here compared it to being hit by a train.  Another
said she felt as if she were watching it through a window.  Another said,
“It feels like you’ve been put in a prison, and you don’t know what you did
wrong.”

This country, as modern and sophisticated as it is geographically isolated,
still seems to be in shock.  But if the events of last month -- the failure
of Iceland’s banks; the plummeting of its currency; the first wave of
layoffs; the loss of reputation abroad -- felt like a bad dream, Iceland has
now awakened to find that it is all coming true.

It is not as if Reykjavik, where about two-thirds of the country’s 300,000
people live, is filled with bread lines or homeless shanties or looters
smashing store windows.  But this city, until recently the center of one of
the world’s fastest economic booms, is now the unhappy site of one of its
great crashes.  It is impossible to meet anyone here who has not been
profoundly affected by the financial crisis.

Overnight, people lost their savings.  Prices are soaring.  Once-crowded
restaurants are almost empty.  Banks are rationing foreign currency, and
companies are finding it dauntingly difficult to do business abroad. 
Inflation is at 16 percent and rising.  People have stopped traveling
overseas.  The local currency, the krona, was 65 to the dollar a year ago;
now it is 130.  Companies are slashing salaries, reducing workers’ hours
and, in some instances, embarking on mass layoffs.

“No country has ever crashed as quickly and as badly in peacetime,” said Jon
Danielsson, an economist with the London School of Economics.

The loss goes beyond the personal, shattering a proud country’s sense of
itself.

“Years ago, I would say that I was Icelandic and people might say, ‘Oh,
where’s that?’” said Katrin Runolfsdottir, 49, who was fired from her
secretarial job on Oct. 31.  “That was fine.  But now there’s this image of
us being overspenders, thieves.”

Aldis Nordfjord, a 53-year-old architect, also lost her job last month. 
So did all 44 of her co-workers -- everyone in the company except its
owners.  As many as 75 percent of Iceland’s private-sector architects have
probably been fired in the past few weeks, she said.

In a strange way, she said, it is comforting to be one in a crowd. 
“Everyone is in the same situation,” she said.  “If you can imagine, if only
10 out of 40 people had been fired, it would have been different; you would
have felt, ‘Why me?  Why not him?’”

Until last spring, Iceland’s economy seemed white-hot.  It had the
fourth-highest gross domestic product per capita in the world. 
Unemployment hovered between 0 and 1 percent (while forecasts for next
spring are as high as 10 percent).  A 2007 United Nations report measuring
life expectancy, real per-capita income, and educational levels identified
Iceland as the world’s best country in which to live.

Emboldened by the strong krona, once-frugal Icelanders took regular shopping
weekends in Europe, bought fancy cars, and built bigger houses paid for with
low-interest loans in foreign currencies.

Like the Vikings of old, Icelandic bankers were roaming the world and
aggressively seizing business, pumping debt into a soufflé of a system. 
The banks are the ones that cannot repay tens of billions of dollars in
foreign debt, and “they’re the ones who ruined our reputation,” said
Adalheidur Hedinsdottir, who runs a small chain of coffee shops called
Kaffitar and sells coffee wholesale to stores.

There was so much work, employers had to import workers from abroad.  Ms.
Nordfjord, the architect, worked so much overtime last year that she doubled
her salary.  She was featured on a Swedish radio program as an expert on
Iceland’s extraordinary building boom.

Two months ago, her company canceled all overtime.  Two weeks ago, it
acknowledged that work was slowing.  But it promised that there would be
enough to last through next summer.

The next day, everyone was herded into a conference room and fired.

Employers are hurting just as much as employees.  Ms. Hedinsdottir has laid
off seven part-time employees, cut full-time workers’ hours, and raised
prices.  The Kaffitar branch on Reykjavik’s central shopping street was
perhaps half full; in normal times, it would have been bursting at its
seams.

While business is dwindling, costs are soaring.  When the government took
over the country’s failing banks in October, Ms. Hedinsdottir’s latest
shipment of coffee -- more than 109,000 pounds -- was already on the water,
en route from Nicaragua.  She had the money to pay for it, but because the
crisis made foreign banks leery of doing business with Iceland, she said,
she was unable to convert enough cash into foreign currency.

“They were calling me every day and asking me what the situation was, and
they got really nervous,” Ms. Hedinsdottir said of her creditors.  They got
so nervous that they sent the coffee to a warehouse in Hamburg, Germany,
where it now sits while she tries to find the foreign currency to pay for
it.

Her fixed costs are no longer fixed.  Five years ago, the company built a
new factory, borrowing the 120 million kronur -- about $1.5 million -- in
foreign currencies.  But the currency’s fall has increased her debt to 200
million kronur.  This summer, her monthly payments were 2.5 million kronur;
now they may be double that -- the equivalent of $38,500 in Iceland’s
debased currency.

“My financial manager is talking to the banks every day, and we don’t know
how much we’re supposed to pay,” Ms. Hedinsdottir said.

In a recent survey, one-third of Icelanders said they would consider
emigrating.  Foreigners are already abandoning Iceland.

Anthony Restivo, an American who worked this fall for a potato farm in
eastern Iceland and was heading home, said all of the farm’s foreign workers
abruptly left last month because their salaries had fallen so much.  One man
arrived from Poland, he said, then realized how little the krona was worth
and went home the next day.

At the Kringlan shopping center on the edge of Reykjavik, Hronn Helgadottir,
who works at the Aveda beauty store, said she could no longer afford to
travel abroad.  But the previous weekend, she said, she and her husband had
gone for a last trip to Amsterdam, a holiday they had paid for months ago,
when the krona was still strong.

They ate as cheaply as they could and bought nothing.  “It was strange to
stand in a store and look at a bag or a pair of shoes and see that they cost
100,000 kronur, when last year they cost only 40,000,” she said.

In Kopavogur, a suburb of Reykjavik, Ms. Runolfsdottir, the recently fired
secretary, said she had worried for some time that Iceland would collapse
under the weight of inflated expectations.

“If you drive through Reykjavik, you see all these new houses, and I’ve been
thinking for the longest time, ‘Where are we going to get people to live in
all these homes?’” she said.

The real estate firm that used to employ Ms. Runolfsdottir built about 800
houses two years ago, she said; only 40 percent have been sold.

By Icelandic law, Ms. Runolfsdottir and other fired employees have three
months before they have to leave their jobs.  At the end of that period, she
will start drawing unemployment benefits.

Meanwhile, her husband’s modest investment in several now-failed Icelandic
banks is worthless.  “They were encouraging us to buy shares in their firms
until the last minute,” she said.

She feels angry at the government, which in her view has mishandled
everything, and angry at the banks that have tarnished Iceland’s reputation.
And while she has every sympathy with the hundreds of thousands of foreign
depositors who may have lost their money, she wonders why the Icelandic
government -- and, in essence, the Icelandic people -- should have to suffer
more than they already have.

“We didn’t ask anyone to put their money in the banks,” she said.  “These
are private companies and private banks, and they went abroad and did
business there.”

Despite all this, Icelanders are naturally optimistic, a trait born,
perhaps, of living in one of the world’s most punishing landscapes and
depending for so much of their history on the fickle fishing industry. 
The weak krona will make exports more attractive, they point out.  Also,
Iceland has a highly educated, young and flexible population, and has
triumphed after hardship before.

Ragna Sara Jonsdottir, who runs a small business consultancy, said she had
met for the first time with other businesses in her office building.  “We
sat down and said, ‘We all have ideas, and we can help each other through
difficult times,’ ” she said.

But she said she was just as shocked as everyone else by the suddenness, and
the severity, of the downturn.  When the prime minister, Geir H.
Haarde, addressed the nation at the beginning of October, she said, her
6-year-old daughter asked her to explain what he had said.

She answered that there was a crisis, but that the prime minister had not
told the country how the government planned to address it.  Her daughter
said, “Maybe he didn’t know what to say.”