Iceland is not Greece, by Mary Pilon.

LETTER FROM REYKJAVIK

Iceland is not Greece

The country's president explains why.

By Mary Pilon

REYKJAVIK — The home of Ólafur Ragnar Grímsson, Iceland’s president since 1996, sits on a surreal, dreamlike peninsula about a 20-minute drive from outside central Reyjkavik.

As far as head-of-state lodging goes, Bessastaðir is relatively modest: a Lego-like collection of buildings that has also served as a farm and secondary school. Even on a recent gray, rainy afternoon, the view from the road leading to its front door still offered a stunning panorama of the coastline that hugs the city of 200,000, two-thirds of Iceland’s entire population.
Driving up to Grímsson’s home (yes, one can more or less just drive up and ring the doorbell), it’s hard to believe that seven years ago, Iceland was on the brink of destruction. Then, its currency, the krona, had fallen by more than a third. Debt loads among businesses and residents surged, and by 2008 external debt was more than seven times Iceland’s GDP. While the U.S. stock market heated up pre-2007, Iceland’s seemingly was on steroids and more than quadrupled. During Grímsson’s presidency, largely a ceremonial role, Iceland had essentially become a defunct hedge fund and the country’s collapse, the Economist said, was “the biggest, relative to the size of an economy, that any country has ever suffered.”
Today, the term “frozen assets” is no longer a cruel pun. Iceland’s unemployment rate is 4.2 percent, half of the European Union’s average. Construction cranes swing and hum around downtown Reykjavik and its streets are filled with tourists brandishing cameras and foreign currencies. Economic growth increased by 3.5 percent from 2010 to 2014, faster than the United States and the United Kingdom.
What had happened in this tiny country that only a few years ago was the case-study for everything that had gone economically wrong?
Watching Iceland’s response to the financial crisis was like watching Bjork music videos: quirky, fascinating and unorthodox. In Iceland, prosecutors brought heads of financial institutions and state to court. The country not only paid back its International Monetary Fund loans, but did so early. Banks were allowed to fail, with Grímsson arguing that it was morally wrong for everyday citizens to bail them out.
I ponder this as I waited for Grímsson in a study filled with leather-bound books and framed photos of him with monarchs and presidents. Gray light beamed in and it was quiet enough to hear the floorboards creak. A woman in a blazer summoned me to sign a registry, kept beneath a white polar bear skin hanging on a wall. Grímsson was ready.

***

More than 6,000 Icelanders had confirmed their attendance via Facebook for a protest that afternoon in Austurvöllur, a popular gathering space in front of Parliament. Many of them were workers on strike, or close enough to it, that they found themselves with time to spare. The rally’s name roughly translated to “Breakthrough! Uprising!”
By late afternoon, a diverse group politely stood in the square: old women, mothers with strollers, children climbing and running about, college students, and young professionals. The tableau could have been easily been for the start of a benign outdoor chamber music performance rather than a collective display of political unrest, a feeling that was heightened once a man began playing acoustic guitar on stage.
The mood shifted as leaders yelled into speakers in Icelandic. Protesters said that they were working too long and too hard for wages that weren’t keeping pace with the cost of food, housing and other necessities. Hundreds waved their keys in the air, a gesture designed to show their anger at the government’s housing policies. They began to chant.

***

Grímsson greeted me in long, narrow room filled with books and a wooden table. He had a shock of white hair, thin spectacles and a tall but friendly presence in a gray suit. We began sipping tea and coffee from presidential cups while seated at the end of a long, wooden table. Grímsson’s sentences mimic the roads here: lengthy, winding, pastoral.
With his professorial demeanor, Grímsson didn’t resort to phrases like, “I told you so.” But he said more or less that, in more eloquent terms. He rattled off economic growth statistics and said that the fishing, technology, tourism and energy sectors were robust. “Iceland has one of the most successful economies in Europe,” he said.
“We did not follow the traditional Western recipes for dealing with a financial crisis,” he said. Iceland did not introduce austerity measures with the same scale as other countries, such as Greece. He said his country had tried to preserve aid to the poor, as well as the healthcare and education system. The government raised taxes. The krona was devalued. “And we refused to use the people’s money to compensate for the failure of private banks.”

I’ve listened to so much ill-informed advice about my own country.

Grímsson recalled the “extraordinary pressure” from other Western governments to do otherwise. They warned, he said, that “we would become the Cuba of the North. All of this turned out to be false. And that is perhaps the most important lesson. That the extraordinary political and economic pressure that was put on Iceland from the end of 2008 to 2011 to follow this orthodox view of every European government and financial institution turned out to be economically fundamentally wrong, turned out to be democratically and politically wrong, but also in the end turned out to be judicially wrong.”
Grímsson likened Iceland to being “almost like a test case or a laboratory case” and said that while in 2009 or 2010, skeptics could quibble with the country’s approach to recovery. “But in 2015, we have the concrete result. So in that sense, the laboratory experiment is over.”
He also stressed that, from the start, he saw the fall of Iceland’s economy as a moral crisis for the country, as well as a financial one.
“An economy is fundamentally a community of people,” he said. “And if the people are demoralized, they are in a shock, they are in profound disillusionment, it’s highly unlikely that any economic measures will get that economy going. You have to give the people back their belief in their future, their self confidence, their desire to go out and be active.”
In particular, he pointed to Iceland’s success in retaining young people within the country’s borders.
“I believe that efforts to maintain the confidence of the younger generation is a very fundamental element in dealing with a profound financial crisis,” he said.

***

The rally brought to the square people like Finnur Eiriksson, a bespeckled 26-year-old Icelander with a maroon knit cap and a red beard. He told me that he has worked in recent years doing odd jobs: mopping floors at an electronics store, but hopes to go back to school for computer science. Since 2008, “things have stagnated,” he said. The protesters began to bang their feet against metal barricades erected around the park. Some eggs smashed against the windows and stone facade of the Parliament.
“Moving somewhere is tempting,” he said. “Salaries here are really low. People have a certain kind of dignity about work. You wouldn’t get anything more than benefits at some of these wages. There is little monetary incentive for young people here.”
Eiriksson was interrupted as a firework made its way through the air narrowly missing us and a woman standing nearby with a baby in a stroller by less than a meter. The smell of chemicals and a plume of smoke enveloped Eiriksson as he coughed. “I haven’t seen it like this before,” he said.

***

Grímsson said he was opposed to providing advice to other European countries, such as troubled Greece to the east. “For one,” he said, “I’ve listened to so much ill-informed advice about my own country.”
He added, “I can describe the Icelandic experience, what we did, how we did it and why we did it and let people draw their own conclusions.”
After some flirtations over whether to join the European Union, Iceland ultimately decided not to, largely because of fishing policies. It has allowed Grímsson to view today’s chaos from a vantage point situated further away.
“Europe’s great contribution to the world is not financial markets,” he said. “Europe’s fundamental contribution to the world is democracy, human rights under the rule of law.”
He recalled the protests and fires that burned in front of his own parliament in the winter of 2008 and 2009, the police defending the Central Bank, the democratic framework that was breaking up.
“What I feared most in January 2009 every day was not whether or not we would recover economically,” he said. “I knew sooner or later we would do that. I didn’t know whether it would be years or decades. But what I feared most was whether or cohesive peaceful democratic society was breaking up. And there is no IMF to put democracy back together if it breaks.”

Soon, Iceland could be without ice.

He evoked the force of fascism and dictatorship that overran the country during his youth. I asked him about the British referendum to exit the European Union. “I think that should be a warning to all of us,” he said. “That the future of this European cooperation is a great uncertainty.”
Grímsson dismissed a recent attempt by a Chinese billionaire Huang Nubo to purchase land in the country approximately one-quarter the size of Hong Kong as “media hype,” but said it did raise questions of what Iceland’s role will be in international politics. Only in the last 20 years has the typically sleepy Arctic Circle become of great international interest, he said.
At one point, Grímsson asked me what had surprised me about Iceland as a visitor. I told him that the day before, I had hiked on top of a glacier and was shocked when a young Icelandic guide pointed to a bald point nearby, recalling when it was once ice-covered, then pointed in the other direction to where the glacier we were on would disappear in our lifetimes. Soon, Iceland could be without ice.
Grímsson turned somber and said that climate change was the greatest challenge his generation faces, and that other countries play a huge role, even as Iceland has shifted from depending on oil and coal to running off renewable energy sources. “We know what’s happening. We don’t need to go to international conferences to realize that climate change is taking place.”
Is he worried about history repeating itself, financial or otherwise?
“There are always going to be financial and economic crises,” he said, taking a sip of his coffee. He added, “Overall, I think this crisis is now embedded in the historical memory of the Icelandic people. And as you probably know, this is a country with a long historical memory. We still talk about the people who came here 1,000 years ago. Our history is very much alive when you go around the country and talk to people.”

***

Bjarni Bergmann, of Keflavik, said over the din of rattling keys and feet stomping, that since the crisis, he has tried to work and help underwater homeowners as well as lobby for more consumer protections for loans. He said he knew a man who bulldozed his house when he heard the bank was coming for it, then parked his car in the pit. “It’s crazy,” he said.

David Steinthorson, a cab driver in Reykjavik, said he felt “gangsters” still had run of the country.
“For years, you went to the banker, they offered you money,” he said. “In a foreign currency. You had money, you had a house, you had a car. Then you had none, you were bankrupt.”
Steinthorson recounted the tales of his taxi passengers and said they were getting more and more angry in recent years.
“We work too much,” he said. “We want everything. More things in every room. I don’t know why.”
Mary Pilon, formerly of the New York Times and the Wall Street Journal, is the author of The Monopolists.