Iceland: the land of cool turns bitter

So how did the Hotel 101 - named after Reykjavik's most exclusive postcode - come to be the watering-hole of a financial elite? For centuries Iceland had a fish-based economy, even fighting a war with Britain to keep its lucrative cod trawling grounds. Then it began exporting aluminium, and then, after free-market reforms introduced by the Thatcherite Prime Minister Davìd Oddsson, it rapidly privatised its banking sector and moved into the business of financial engineering - to such an extent that a handful of Icelandic banks, expanding aggressively, have ended up with liabilities more than eight times the national GDP.

That gold rush, at the beginning of this century, has spun the illusion of wealth. Dorrit Moussaieff, the jet-setting jewellerydesigner wife of President Ólafur Ragnar Grimsson, set the tone, with her coterie of girlfriends - Rannveig Rist, the general manager of Alcan Iceland; Tinna Gunnlaugsdóttir of Iceland's National Theatre; artists and gallery owners - all regulars at the now eerilly silent 101.

But it wasn't just a wealthy elite who surfed the Zeitgeist. Ordinary Icelanders were swiftly freed from the idea that they belonged to an impoverished society where the key question about a future bride was: is she a good housekeeper? In the past five years, people's average wealth has grown by 45 per cent - and the money has gone into houses and cars, financed by 100 per cent loans based on a spread of foreign currencies. Now the krona is plummeting, loans are ballooning and thousands are defaulting. The only good news is for foreign visitors, for whom beer has at last become affordable.

[...]

There are only a few tell-tale signs of trouble - the hole where the foundations for a new Landsbanki headquarters were to be sunk has been quietly filled and tarred over to form part of a car park. And the new Landsbanki-sponsored opera house looks as if it may not be finished.

If there are still Vikings in this Iceland, they are the financial marauders setting out for Britain - not to pillage and plunder, but to snap up a chunk of French Connection.

But now, suddenly, Icelanders have grasped that such activities do not represent the future of the island and, indeed, they could be its downfall. The new Vikings have been thriving on the cronyism and back-scratching culture of Reykjavik. Since the beginning of the 20th century banks and government have worked hand in glove. If a minister slipped into Opposition, he was more or less guaranteed a post as a bank director. The privatisation of the banks was supposed to end all that, but it merely continued by other means.

Professor Thorvaldur Gylfason of Reykjavik University has been predicting disaster for years - on his desk sit wooden blind and deaf monkeys, representing central bank policymakers - and has been shunned for his efforts. "We have Thai-style croneyism that has failed the system," he says. "The Government is not on top of the situation. It is in denial and has not been truthful about the system."

 ~ more... ~