post mortem

Since the resurrection of the IR in November, I have so far been tiptoeing around the 800-lb. gorilla that's sitting in the room here: the collapse of Iceland's economy and currency. There are so many angles to cover that I am not quite sure where to begin. The Wall Street Journal came out with a pretty good summary today. The saga will be familiar to my Icelandic readers, but probably educational for those outside of the country.

This is something we had been building to, unfortunately, for many years. The fact that the country was in an unsustainable bubble was plain as day to me when I first moved here in 2004, and I wrote about it in 2005 and 2006. The longer a bubble goes on, however, the more we accept it as normal and become blind to its excesses. Iceland saw the mother of all debt bubbles. I think the nation will be paying for this one for the next decade or more.

I know that many of my American readers are under the impression that, once more, the "best" economic collapse is happening in their country. And while playing Depression one-upmanship is surely not the best use of time, just to put Iceland's collapse into perspective: the OECD is predicting that the economy here will shrink by almost 10% in the year 2009. In America, where the newspapers abound with "Great Depression II" headlines, that economy is only predicted to shrink about 1.5%. Inflation, which is running at around 15% here, is expected to increase at the same time. And whereas in 2007, when $1 cost only 60 krónur, as of today, that same dollar costs 126. That means that the ISK price of anything we'd like to buy from the US - be it a crate of Washington apples or a Boeing Dreamliner - is double what it was a year ago. Maybe someday I can tell my grandchildren I lived through one of the greatest national collapses in Western history. But the day-to-day uncertainty here is still for the moment pretty unsettling.

the páll óskar mistake

One of the great new Christmas traditions for me here in the Land has been the midnight mass. After the big dinner on the 24th comes the opening of presents, then after that heading on down to a bright church full of candles and music has always felt just right for this dark and peaceful time of year. Hallgrímskirkja, the towering feature of the Reykjavík skyline (yet now looking a bit like the Statue of Liberty circa 1986) has been my church of choice for the past few years running. But this year, we decided to "mix it up" in the words of my bro, and go instead to Fríkirkjan, the Free Church of Reykjavík. It's a beautiful old building on the banks of Tjörnin, the city pond. Páll Óskar, Icelandic pop star extraordinaire, was going to be a featured performer. I thought it might be nice to see a different church and hear some Christmas hymns from a famous Icelandic voice.

Well, what we thought was going to be a mass actually turned out to be a concert, very thinly veiled as a church service. Sure, there was a priest who came walking down the aisle, but after saying a few words he took a back seat (lit'rally) to Páll Óskar. In a move completely unnecessary in a fairly small church, he was amplified, singing into a PA system he had rigged up himself beforehand. He had a harp player next to him, also amplified, and between the two of them, they completely drowned out the voices of the meager house choir and handful of hapless string players.

Our friend Páll sang 5 numbers before the Predikun and then another 4 or 5 after. The whole event was built around him. The first two of these were hymns, but at least one was a summer hit of his, delivered without decorum as though he was on stage at a club. The last, in English, was the worst: some atrocious ramblings about a spaceman come in a UFO to light the sky like a star for the baby Jesus. I got the feeling Páll Óskar, clad in a mirror-covered jacket that reflected light like a disco ball, wished he were the spaceman. I wished I was the UFO fleet commander, getting beamed out of the sweltering crowd to a better place in the sky. This song in particular had so many refrains and reprises it went on about as long as "99 bottles of beer", but with possibly less entertainment value.

We were clearly, however, in the minority, because everyone else there seemed to eat this stuff up. After every song (and in what was, remember, billed as a "mass") the crowd erupted in hearty floor-shaking applause, even clapping in synch for an encore after the spaceman debacle. The people really did love it. It was clearly our mistake to expect something other than a Páll Óskar stage spectacular, even at midnight on Christmas.

gleðileg jól

The table is set, the Bibler-family Thanksgiving classics are cued up to go in the oven, the tree is lit and decorated and surrounded by a modest number of kreppugjafir, the cream is whipping (the wind and rain are whipping even more), the darkness is falling, and it's almost time to get dressed in our Christmas finery. Dinner starts in a couple hours, then gifts, and then midnight mass downtown. It's my fifth Christmas in Iceland and it's becoming harder to imagine it any other way.

With that, I'm flicking off the endless rows of fluorescent lights and sending home all the staff here at Iceland Report World HQ. From all of us to all of you, Gleðileg jól og farsælt komandi ár.

skate in '08

Today is Þorláksmessa, the day we celebrate Þorlákur Þórhallsson, an Icelandic bishop from Skálholt. He died on this date in 1193 A.D., and to remember him Icelanders made a law in 1199 A.D. reserving the mass on this date in his memory.

Actually, I bet most Icelanders don't know anything about Þorlákur. But everyone refers to the 23rd of December as Þorláksmessa. It's the day people leave work a little early and the Christmas festivities begin. It's also a day with a very special culinary tradition. Today is the day Icelanders eat fermented skate, a dish so potent it must be boiled outdoors.

I had my skate today at lunchtime, at an unusual location: the restaurant at Iceland's trendiest athletic complex. But there was nothing athletic about the skate meat itself: pale brown and boiled and reeking of ammonia, it's a bit like eating a soggy meat mop. It's also full of little soft bones, fanned out like little cartilaginous bamboo poles. To make it a bit more appetizing, it's served with a big dollop of what are effectively chitlins floating in animal fat. So you get a plate full of grease to lube it down. There is also rye bread and salted cod on offer. "Balancin' my meal!" as the Abominable Snowman used to say.

It's not my favorite meal of all time. But it's good to eat something strong once a year, to mark the beginning of Christmas and the passage of time.

wet christmas

After what seemed like weeks of continually accumulating snow, by yesterday morning the Reykjavík area was blanketed in the stuff. It was white and glorious everywhere, streetlights and Christmas lights reflecting light back off the ground and keeping things cheerful in the 20-hour December nights of Iceland.

But no more. Yesterday we got hit by a wind and rainstorm that eradicated all of the snow within a couple of hours. Winds on top of nearby Skálafell were 80 mph last evening, gusting to 100. Temps have shot back above freezing. And while it is calm now, the synoptic charts are showing at least 3 new low-pressure systems cued up to curve their way around the south tip of Greenland and slam us with more rain and wind than we know what to do with. (Actually, we do know what to do with it. The Land has a seemingly infinite capacity for rain and wind.)

As of now, it looks like at least the first half of the Christmas holidays (which start today and extend through the weekend) will be experienced in gale-force strength. Also it seems like we're taking one for the European team, as the whole of the British Isles and Continent sunbathe under glorious clear skies the next days. And that seems to mark a fitting end to 2008.

"reykjavík"

Icelanders, imagine if you moved to a foreign city, let's just say San Francisco for the sake of argument. And after you had been living there a couple years you heard of a new bar called "Reykjavík". Excited and curious, you make it your first stop the next time you're out on a Friday night. Upon arrival you expect to see some RVK artifacts on the walls: maybe a 1968 KR Football Club team photograph or ticket stubs from Regnboginn, some pictures of "Jón Forseti" or a 1944 winter day on Bankastræti, maybe an Icelandic flag hanging in the corner. But curiously, there are none to be found. In fact, the place looks plain, like any other S.F. bar. Next you sidle up to the bar and say, "Einn bjór, takk." The bartender looks at you with a quizzical expression, as if, well, you had just been speaking Icelandic. He shrugs. You switch to English and order the beer, and after some more conversation come to find out that not only is he not Icelandic, but the owner isn't either. Puzzled, you ask him about the origin of the name "Reykjavík".

"Oh," he responds, "well, that's the owner's nickname. He just likes to be called that, you know, sort of an affectation. I guess he thought it would make a catchy name for the bar, too."

Gentle readers, this is the situation facing me, a proud Boston native - a guy who once rented an apartment just because it was across from Gate A on Yawkey Way, a guy who can sketch the Boston skyline from memory, a guy who once even swam in the filthy muck of the Charles River - when I contemplate the Reykjavík establishment called "Boston". Out of the sense of parochial pride that only a dyed-in-the-scratchy-wool New Englander could possess, I had been boycotting the place for a few years now. Finally though I did go there last night, against my better judgment, to meet a guy called the Bishop and his Friday-night "flock".

Unfortunately for my angst, it is a good place, in spite of the fact that there is absolutely nothing "Boston" about it. Nothing. And though it pains me to admit this, last night might have been the best mix of locals, local celebs, music, and bathroom-line conversation I have seen in the 101 in a long time. So I'll probably even be going back. But maybe with a nice b/w of Mayor Ray Flynn for the front wall.

ferðastofan

Long-time Iceland Report reader Ian Watson does more than just read the Iceland Report. In his spare time, he writes an excellent website targeted at Icelanders traveling abroad. In his words, "Six months ago, Icelanders still thought it uncool to consider price when purchasing everything from airfares to guidebooks to travel clothing." But with financial reality now once again a reality, it makes sense to not overspend when one heads over the stones. His latest newsletter tackles capital controls, the new entry process to the U.S., and the refusal of Icelandic mobile phone companies to comply with the new law on European roaming charges. (I just got a bill for a handful of calls and SMS messages in France that amounts to the cost of two weeks of groceries.)

A land where commerce is controlled by a handful of monopolies and duopolies needs more consumer-friendly resources like Ferðastofan. Thank you for the good work, Ian.

"wall street"

One of the most annoying and misguided phrases of the Icelandic super-bubble had to be the labeling of Reykjavík's Borgartún area "Wall Street". This name was obviously invented by someone who had never been to the actual Wall Street, or at the very least doesn't understand the fundamental relationship of Manhattan to its environs or the superiority of the (212) to anything that needs to be reached via bridge, tunnel, or commuter train.

If any area in Reykjavík could be considered "Wall Street" (and I hesitate to even make the comparison, such is the level of ridiculousness) it's downtown in the Hafnarstræti/Austurstræti area where Landsbanki has its headquarters and where it's actually possible to walk from building to building. The sidewalks are relatively populated with pedestrians during the daytime. Walk-up lunch options like Nonnabiti and Bæjarins Bestu add a further "real city" feel.

Borgartún, by contrast, is a wasteland of big-box buildings, parking lots, and strip malls. There are no pedestrians. There are no lunch places. There is no there, there. The area has a lot more in common in look/feel with the places in the NY suburbs where Wall Street banks moved their operations and backup centers in the wake of 9/11. If I were to nickname this place in the parlance of New York finance, I'd call it White Plains. That's about perfect.

sunday times on iceland

In a beautifully written article, visiting British journalist AA Gill captured the essence of why I love Iceland. Bravo!

sweden's churchill

Yesterday I had the pleasure of attending a lecture by Göran Persson, the Prime Minister of Sweden from 1996 to 2006, and before that the Swedish finance minister. In these positions, he played a key role in steering Sweden back from its banking crisis of 1992.

He came to Iceland to share his experiences, speaking at Háskóli Íslands, the University of Iceland. Even in non-native English, I found him a powerful and compelling speaker, one who held the packed auditorium in rapt silence. Many of his points were dead-on and many are not getting anywhere near the deserved attention from Icelandic politicians or the media in these stormy months of crisis.

He started off by saying he wasn't going to tell us what to do, but merely to share his own experiences with Icelanders. He said after being Prime Minister, he knew how it felt when foreigners came to his country and tried to tell him what to do. But then, of course, his whole lecture seemed to be built around telling us Icelanders exactly what to do. But it was all good stuff. Following is my summary of some of the main points he made. Some of my thoughts, in parentheses, are blended in.

Action: Don't wait for the IMF or others to tell you what to do. Take the lead now. "It's not difficult to see what to do, the difficult thing is to do it." Later he quoted Gorbachev, "He who waits will be punished by history."

Credibility: It is important to create credibility in Iceland. Both the government and Central Bank must realize that their words and actions reverberate far outside Iceland. With gains in credibility come gains in the local currency and easier debt financing. Loss of credibility will punish the currency.

(Incidentally, this is why I feel that Davíð Oddsson's resignation from Central Bank governor is necessary. Not because of anything specific he said or did, though there are many egregious examples. But because he has the habit of making off-the-cuff remarks that send the wrong message to markets outside of Iceland. This is not a good habit for a Central Bank governor to have. "Loose lips sink ships.")

Debt Burden: In taking on the debts of a banking sector that was 10 times the size of the national GDP, Iceland's government faces a giant debt burden in the coming years. Some of this may be made up by sales of bank assets, but these are difficult times in which to sell these assets and he doubts Iceland will recoup 100% of them, as Sweden did. The only solution to this debt burden is a radical restructuring of public finances, both through much higher taxes and cuts in every area of public expenditure including social services. Front-load these painful adjustments. "You have no time to lose." Restructuring the budget in 2009 will surprise everyone, sending a positive signal to the markets, which expect Iceland to wait until 2010.

Political Crisis: Try to avoid one. This sends a signal of weakness and hurts the nation's credibility. "Political parties are important but the country is more important."

Budget Package: (The cornerstone of his speech, which he returned to several times.) Start setting out a 2-3 year budget program. Describe it plainly for the electorate. Set expectations of higher taxes and lower services. Explain clearly the pain that will be coming, and the need for it. And be prepared for a backlash: he pushed hard on strict changes in the Swedish budget and ended up "the most hated politician" in Sweden. Be honest now, and the public will thank you later.

Conservative Assumptions: When you put together your budget package, use conservative estimates when budgeting economic growth rates, interest rates, and inflation rates. (In my opinion, this is something few Icelanders, being perpetual optimists, know how to do.) If you think the GDP growth rate will be 2%, use 1% in your model. If you think inflation will be 8%, use 10%. Also, don't use book-keeping tricks that hide reality.

Transparency: Open the books to all. Let the public see what models and assumptions are being used. This will aid debate and help see the necessity of the package.

Justice: Go after those few who created this crisis. The whole population will pay for their actions, so it is important for credibility that these participants be brought to justice. Try to get every penny you can from them. Give the authorities the necessary resources to pursue them. But always respect the rule of law. Stick to your legislation and prosecute only clear violations of it.

(The rule of law is also a concept that to me feels a little thin on the ground here in the Land. There is not a strong sense of one law that applies the same to all, nor a clear sense of "due process" where the law is always applied the same way, through the same procedural steps. I could be wrong, this feeling is based on conversations and anecdotal evidence. Further, it seems that Iceland's markets, which have grown up largely only in this decade, were not set up with an adequate legal framework. For example, there seem to be few protections for minority shareholders in a corporation. So there may not be adequate laws on the books to publish acts that would be clear crimes in more evolved legal systems.)

Goals: Set public goals. The core goal should be the level of debt, a secondary goal should be inflation. A goal could be: "In three years the level of debt of the government will have stabilized." In your goals, prepare for the next downturn. Prepare to build a surplus in public finance for that point in time.

The European Union: "We [Swedes] love to hate the European Union." They joined in 1994 in the midst of their banking crisis and this sent a positive signal to the capital markets. But the downside of EU membership is the bureaucracy. These days, the UN structures are falling apart: "World War II is finally over." The EU is one of a few newer international organizations that can push forward the interests of its members. We need new international organizations: "We don't have an international political body strong enough to balance the international capital markets."

Pensions: Iceland is in a much better position than most, with its strong pension system. This is a huge advantage.

The Currency: To maintain a small currency like the ISK is possible, but it demands much more attention to public finances than maintaining a large currency. Iceland has unfortunately not been paying much attention to public finances.

Mr. Persson concluded by saying that Iceland had many advantages, among them the well-educated population, and that he was optimistic for our future. The time to begin the painful rebuilding that lies ahead, however, is now.

glass ghetto

I had a meeting today in Smáratorg 3, also known as Turninn (the Tower). This place has got to be the biggest physical manifestation of all that was in excess during the Icelandic banking/borrowing/lending/real estate/fjallajeppi bubble. "The Tower" is 20 storeys of wannabe I.M. Pei mirror-glass thrown up in the suburb of Kópavogur. It casts a long shadow over the equally hideous Smáralind mall that sits to one side. There is absolutely nothing architecturally special about this building, a 3D rectangle of glass stamped out of a cheaper-by-the-dozen cookie cutter. In size and scale it dwarfs everything else in the entire country, save for maybe the LORAN-C antenna on the north side of Snæfellsnes. And at least the LORAN station has a little Cold War panache.

I had a dinner event in the restaurant at the top this past summer when the building had just opened. Everywhere there was the feeling of things having been slapped together: the entrance doors didn't work and someone had laid plywood and cardboard down over some of the floors, lending them a Children's Museum tactile-exhibit feeling. Upstairs, the restaurant was a warren of little rooms, all with the industrial-white vibe of an imminent videoconference. A crack ran through the pane of one of the main glass doors. Enjoyment of the fantastic view was tempered by the overabounding weirdness of the space around us and of the dysfunction of the building as a whole.

Even today it's still a bit like the partially completed Death Star, the ceilings over the covered walkways exposed to show lighting and wiring, mismatched steps where the concrete doesn't quite line up. Entire levels of the building are awaiting tenants, the windows of locked doors revealing just vast unfinished concrete floors with maybe a broom leaning in the corner. In a land that prides itself on things being neat and tidy, this is a monstrosity that will haunt for generations.

skólavörðustígur

...or school-warden's-path, is one of the most promient streets in downtown Reykjavík. It angles off of the Bankastræti/Laugavegur junction and heads straight up an incline to Hallgrímskirkja and the Statue of Pre-Columbus Ass-Kicker Leifur Eiriksson, standing on his concrete prow.

This past summer, the street was closed to car traffic and the place was dug up to a degree that would suggest this project as R-town's answer to the Big Dig. Even being a pedestrian was difficult as passing down what was once the sidewalk involved navigating a series of interlinked wooden bridges. The owners of Kaffi Babalú complained that they had lost much of their business, as the cafe was hidden from view by a pile of construction-related detritus.

I remembered all of this today, as I walked down from the top of the hill towards 12 Tónar. I don't know when exactly it happened, but it's as if all of the construction debris was never there. The street looks just like it always did.

But with one huge difference. We got 3 or 4 inches of snow last night, and on this cold blustery day there was zero snow to be found anywhere on Skólavörðustígur. Not on the street, not on the brand-new wide sidewalks, none even at the intersections where other roads connect. As part of the dig-up, the city laid hot water pipes under everything they could. Off on the side streets, I could see just where the hot water pipes stopped: there was a line of snow and ice there that could have been drawn with a ruler. But on the main street, all was clear.

When the Icelandic economy really hit the skids the first week of October, I remember reading a British article on what was happening here. At the bottom, in the comments section, someone had written in what seemed to me a spirit of schadenfreude, "Wait until the winter comes and nobody can heat their homes!" Lady, we have so much hot water here we heat whole streets.

geldingarnes

Even after four years here, I am still discovering things, some of them only minutes from where I live. Out at the end of the Reykjavík neighborhood of Grafarvogur, right in the looming shadow of Esja, is a little dirt causeway that leads out to a magnificent mass of land called Geldingarnes. It's a big island in the Reykjavík harbor, along with Viðey, but unlike Viðey one can drive right onto it. (At least when the tide is out!)

I hear the place is one of the sanctioned leash-free dog-walking areas of the city, and the couple times I have been there I have seen one or two lonely souls with tongue-lolling dogs meandering nearby. The top of the tallest hill affords panoramic views of the port's cranes, the harbor, Viðey, Esja, and Mósó wrapping into the sprawl of Reykjavík, laid onto the topography like a concrete sprinkle.

But despite the large number of inhabitants just across the water, it's quiet. There is only the sound of the wind to keep you company, or drive you mad, depending on your proclivities. Above, the sky spans huge and off on the southwest horizon are the mountains of Reykjanes. On clear days at this time of year, the sun shines brightly across them for a few hours, but low in the sky, with an orange hue that might be mistaken for sunset somewhere else. And underfoot the dry winter grass rustles in the wind, marshes and streams frozen solid.

Come see it before it gets turned into another ugly suburb.