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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