Iceland: “but people ask why can’t I pay my mortgage? Why is my salary not going up?”

Whilst everyone else is focused on the tribulations of Greece, I would heartily recommend that if you don’t read anything else today, read this Reykjavik Letter (€) from Peter Geoghegan in today’s Irish Times:

visions of Iceland as a Nordic Nirvana – burnt bondholders, jailed bankers, a crowd-sourced constitution – often clash with reality here.

The Icelandic economy has recovered since the kreppa, the 2008 banking meltdown. But the cost of living remains painfully high, even if the country is far more affordable for visitors than in the boom years. The currency remains subject to capital controls and tens of thousands struggle with mortgage debt. Household insolvency is at a record high.

Most of the policies much-celebrated internationally, such as the capping of mortgages taken out in foreign currency and the decision to maintain minimum standards of social provision, were implemented by a left-wing coalition elected in 2009.

That government, however, was unable to deal with the most pressing question facing many Icelanders: the crippling debt owed by those who bought property in local currency during the decade-long housing boom that came to a shuddering halt when the kreppa hit, leaving Iceland’s banks with debts 10 times the nation’s GDP.

Not that simple, eh? Most of these policies have been hawked unmercifully by both the left and right as some kind of easy panacea for the state and its citizens.

But as we all know (or at least have been told) when you get into a skid, the easiest way to lose control of the vehicle is to exert a sudden jerk on the wheel. You never know where you’ll end up.

Do read it all (it’s worth the price of the paper alone)…

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  • kensei

    Who said it was easy? That is a giant, towering straw man. The question is whether the hetrodox policies pursued by Iceland provided better outcomes than the standard austerity model opposed on Ireland and Greece.

    Iceland’ unemployment rate – 4.6%

    Greece’s unemployment rate – >25%

    Iceland Growth:
    If you look form 2008, a good bit up and down, but a good bit of up:

    Greece growth:

    A desert. It’s finally going up, but economies will eventually hit rock bottom.

    Check GDP in constant prices for further confirmation.

    But, but, but… the words are already forming, Mick. But there is no but, you would be Iceland a million times over Greece and the cold hard facts back it up. The treatment mete out to Greece and the PIGS in general, is nothing short of a moral scandal.

    The sudden jerk from austerity politics resulted not in a skid, but a far more favourable course for Greece. There is no silver bullet and you don’t come out of depression level economic events unscathed, so yes, people are still struggling with mortgages. I would also add that most of that article is people complaining about a return to pre-crisis policy.

  • Kev Hughes

    Hi Kensei,

    I read this too and largely thought it a bit of a nonsensical piece. I had the pleasure of dating someone from Iceland last year and still remain friends. The situation there isn’t great, but it’s not like they thought it would be after what happened so yea, the use of a straw man above is incredibly disingenuous and I largely see it as part of the drive to undermine Greece and its plan to stop the current austerity policies being employed.

  • Zeno

    Debt is a two way problem.
    All of the billions owed by Countries, Businesses and Individuals is actual money owed to some other Country, Business or Individual.
    The lenders took a risk, albeit a supposed very small risk when they made the loans.
    They made an investment to make more money for themselves.
    The question is, why do they have to be protected against risk when the rest of us aren’t? The answer seems to be that the borrowers need money in the short term to survive and if they default or try and get reasonable terms that will let them pay over a much longer term, the lenders will cut them off.
    There is no shortage of money. The problem is in how it is distributed.
    I think the borrowers have a lot more power than they think they have.

  • Robin Keogh

    Iceland has come a long long way from the heat of 2008 and no it has not been easy. But the article suggests that the country is in bad shape when in fact that is not true at all. It has growing employment rate, stable balance of payments and increasing FDI. Iceland like all scando states has always been a pricey destination so there is nothing unusual about that, Its debt problem like all of Europe’s debt problem is made tricky because of the lack of sustainable inflation. The country dealt swiftly with its crises and reaped the benifits of doing so but I have never thought it to be a nirvana of any sort.

  • Thomas Barber

    “That government, however, was unable to deal with the most pressing
    question facing many Icelanders: the crippling debt owed by those who
    bought property in local currency during the decade-long housing boom
    that came to a shuddering halt when the kreppa hit, leaving Iceland’s banks with debts 10 times the nation’s GDP.”

    Reality does not support the above supposition, go to Reykjavik, go to the harbour and look all around you, apart from seeing mountains of snow, you will see tower cranes and high rise apartments being built all around. You dont see much poverty even though the cost of living is very high you dont see many beggars or alcoholics hanging about. Iceland has come a long way since the days when it allowed the bankers and investors to answer for their own sins but those days are long past and Iceland unlike Greece is emerging from the manufactured financial crisis with a vibrant tourist economy with the added bonus of a return of the investors.

  • PaulT

    Weirdly, the Guardian had the latest from the ONS, including a survey of 50 leading UK economists, probably much more relevant to slugger, also highlights just how tough it’s beginning to get for the UK. Seriously, let the Eskimos and Greeks worry about their own problems and worry about the UK economy instead.

  • Framer

    They still owe the UK £8 billion from the Icesave and Landsbanki banks that crashed when that nice Mr Darling repaid all their depositors against Treasury advice. And they won’t be paying any of it back because they know the UK hasn’t the courage to take them on. So we face cuts to please Reykjavik.

  • Unemployment Rate in Greece increased to 26 percent in December of 2014 from 25.90 percent in November of 2014. Unemployment Rate in Greece averaged 14.70 percent from 1998 until 2014, reaching an all time high of 28 percent in September of 2013 and a record low of 7.30 percent in May of 2008. Unemployment Rate in Greece is reported by the National Statistical Service of Greece.