Iceland: Coming to Terms With Financial Woes

Iceland is hit by economic disaster but reporter finds people are optimistic.

REYKYAVIK, Iceland, Oct. 15, 2008 — -- It's 10 a.m. and I'm walking down the main shopping street in Reykjavik, Iceland. Stores selling everything from the finest Armani suits to Prada shoes to high-end outdoor gear are opening. The bakeries and cafes have been open for hours. Icelanders headed to work move at a fast pace, weaving through meandering tourists.

If I didn't already know that financial disaster had struck this island nation of 320,000 people, it would be nearly impossible to tell just by walking around.

Iceland is in trouble. No doubt about that but the hysterical reporting out of here in the last two weeks has made it seem worse than the reality. At the moment it's a crisis without much of a reaction. Icelanders are still coming to terms with what is happening to their country. There are no shortages of food. There is no panic in the streets.

That said, there are huge hurdles for this country that just a few months ago was -- per capita -- the wealthiest in the world. Its inflation rate is at a staggering 15 percent, making Icelanders feel less wealthy every week. Taking out a loan here is all but impossible with interest rates hitting about 22 percent. On top of it all, the currency here -- the Krona -- has lost about 80 percent of its value in one year. The bright side is it makes Iceland a bargain for tourists.

At the high-end clothing store Saevar Karl, a salesman said, "It used to be bankers that kept us in business; now its tourists coming here to do all their Christmas shopping."

Iceland is roughly the size of Kentucky with a population about the size of Cincinnati, Ohio. People are worried here but no more so than dry cleaners in Louisville, Ky., or a bus driver in Ohio. Icelanders by nature are cool, calm and relaxed. But these days they are quietly angry.

Angry that, as the story goes, 30 or so guys (bankers) wrecked the Icelandic economy and then escaped to the Cayman Islands. They are angry that the government here didn't do more to head off the disaster. They are most angry that British Prime Minister Gordon Brown went on television and announced that Britain was going to freeze Icelandic assets in the United Kingdom as a way of recouping depositors' potential losses.

Icelanders viewed the move as cheap domestic politics by Gordon and say his words caused a worldwide run on the entire banking industry here, which had been the source of Iceland's great wealth.

One man stopped his morning swim in a pool heated by volcanic steam to interject: "Gordon Brown better not come on vacation here. He's made George Bush seem like an all right guy." (Liberal Iceland is not fond of Bush.)

Icelanders are optimistic but what choice do they -- or any of us -- have? Some here think they have lost the bulk of, or all of, their savings. Some say they have money in the bank but can't access it. A lot of Icelanders say they never had money anyway so now everyone is equal.

Waiting is what most Icelanders are doing right now. Waiting to see whether the world will remember that this highly educated island with a wealth of natural resources still exists.

Whatever the outcome people here say, "We've survived worse." Iceland is waiting to see how much worse it gets.