The good news is Iceland is back after a lost economic decade post the spectacular economic crash in 2008. You could be boring and support that conclusion by looking at the official economic statistics. Or you could look at the latest drug trafficking figures. My favourite local newspaper, “The Reykjavik Grapevine” reports that “so far this year, customs agents at Keflavik International Airport have intercepted 20.7 kg of cocaine coming into Iceland, which is more cocaine than has been seized in the past four years total.” Coke is back, and as the rich man’s drug, it is the best indication we have of the recovery and the fact that money is starting to slosh around again the island economy (cocaine at the moment sells for 18,000 Krona or 143 Euro per gram, whereas amphetamine sells for 5,000 Krona or 40 Euro per gram – yes, Iceland can be scarily expensive, even by the European standards).
The rise and fall (and the rise again) of Iceland is a fascinating story:
An entire nation without immediate experience or even distant memory of high finance had gazed upon the example of Wall Street and said, “We can do that.” For a brief moment it appeared that they could. In 2003, Iceland’s three biggest banks had assets of only a few billion dollars, about 100 percent of its gross domestic product. Over the next three and a half years they grew to over $140 billion and were so much greater than Iceland’s G.D.P. that it made no sense to calculate the percentage of it they accounted for. It was, as one economist put it to me, “the most rapid expansion of a banking system in the history of mankind.”
At the same time, in part because the banks were also lending Icelanders money to buy stocks and real estate, the value of Icelandic stocks and real estate went through the roof. From 2003 to 2007, while the U.S. stock market was doubling, the Icelandic stock market multiplied by nine times. Reykjavík real-estate prices tripled. By 2006 the average Icelandic family was three times as wealthy as it had been in 2003, and virtually all of this new wealth was one way or another tied to the new investment-banking industry. “Everyone was learning Black-Scholes” (the option-pricing model), says Ragnar Arnason, a professor of fishing economics at the University of Iceland, who watched students flee the economics of fishing for the economics of money. “The schools of engineering and math were offering courses on financial engineering. We had hundreds and hundreds of people studying finance.” This in a country the size of Kentucky, but with fewer citizens than greater Peoria, Illinois. Peoria, Illinois, doesn’t have global financial institutions, or a university devoting itself to training many hundreds of financiers, or its own currency. And yet the world was taking Iceland seriously. (March 2006 Bloomberg News headline: iceland’s billionaire tycoon “thor” braves u.s. with hedge fund.)
We have all sneezed as the global economy caught cold in 2008, some more violently than others. But the extent of Iceland’s predicament can still astonish an observer years after the worst has passed. For those interested in a short and sharp read about the financial house of cards that Reykjavik wannabe international bankers and speculators have built, I recommend the relevant chapter of Michael Lewis’ “Boomerang, though Icelanders dispute some of his more colourful claims, such as that at the height of the panic, desperate people were setting their Range Rovers on fire to collect insurance money.
You don’t need cocaine, however, to know that Iceland is back. In fact, it’s probably better you don’t (one of the most astonishing pieces of trivia I’ve heard during my stay concerns the country’s prisons: they currently have an upper capacity of some 70 spots, and so there is a queue of over 200 Icelanders who have been convicted and sentenced but for whom “there is no room at the inn” and who are therefore waiting – out in the community and in freedom – for the next convict to finish their time so they can start serving their sentence. This can often take years).
Tourism now seems to be filling the economic niche that financial services once sought to do. Servicing visitor might be more hard work and messier than speculation, but it is also more sustainable. Iceland is also blessed with abundant geothermal energy, even currently having the capacity to produce five times the amount of electricity it needs (an underwater cable is being constructed to literally plug the British grid into the Icelandic socket).
Once, the Vikings would sail the seas to rape and pillage everyone else. Now, everyone else comes to the Vikings to get raped and pillaged. It’s progress, I guess, and it’s worth it.