The recovery of Iceland -- slow going

In 2009, thousands of Icelanders protested before that country's parliament building, calling upon the government to resign. The conservative government was being held responsible for the collapse of that country's banking system. Now, three years later, are the people of Iceland any better off?

REYKJAVIK, ICELAND (Catholic Online) - The collapse, which took down the country's three major banks in 2008, was the largest banking collapse ever in relation to the size of the national economy. The banks were unable to refinance their short-term debt.

The government soon gave in to the protesters demands, and redesigned en masse. Replacing the conservative government was a left-wing coalition forged between the Left-Green Movement and the Social Democratic Alliance. The new government came to power with a pledge to look after the average citizen.

One effect of the crash was the devaluation of the Icelandic krona. This caused the price of imports to substantially increase. As a small island nation, Iceland is dependent on imports. Food, fuel, and consumer goods all rose rapidly in price bringing about a wave of inflation that made life difficult for the people.

Adding to the problem, businesses were also suffering and were forced to cut back. Many were laid off, or took wage cuts. Unemployment skyrocketed. 

Iceland is a small country, a nation of 300,000 people. According to that country's statistics, approximately 75 percent of the people own the home in which they live. However, people who purchased homes just before the crash have suffered the most.

Much like in the United States, financing came easy until 2008. Many homes were 100 percent financed by banks, some with foreign currency. After the crash, many people found themselves upside down in their mortgages -- owing more for their homes than what they were worth. Today 40 percent of Icelanders owe more than their homes are worth. 

Worse yet, people who took foreign loans to finance their property saw their payments rise as the value of the Icelandic krona dropped. 

Some have lost their homes, but some have found creative ways to keep their homes. Many have traveled abroad, particularly to Norway with its booming oil industry. Working overseas for a year or more, Icelanders have returned with savings in hand and are making efforts to repay their loans.
New government programs are available that allow people to renegotiate the terms of their loans. 

Specifically, programs exist that allow people to make only interest payments and resume payments on principal later. The trade-off is that after a period, those payments will be higher than they originally were but the hope is that the Icelandic economy will be stronger and people will be better able to afford them.

Still, for those who cannot find enough work and cannot keep up their payments lose their homes.
The government's programs and its efforts to revive the national economy have helped the average person somewhat. Today, there are more jobs, and fewer people are facing foreclosure.

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Unemployment has dropped to just 6 percent. But the people who seem to be doing the best, are the bankers themselves.

Reports clearly show that wages at banks have increased -- not fallen. It seems that no matter what, the bankers always seem able to turn a profit.

Meanwhile, the average Icelander is learning to make do with a little less. This might not be such a bad thing. Many now eschew the consumerism that typified Icelandic society through 2007, and many are spending more time at home with their families.

For some, they will argue that the government's policies have in fact worked, leaving families closer together, and therefore better off, than they have ever been before.

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