Wojciech Moskwa, Reuters
December 1, 2008
REYKJAVIK – Iceland marked the 90th anniversary of its autonomy on Monday with its economy in ruins, its confidence fading fast and its future uncertain.
The country faces pressing problems concerning its immediate economic situation and more strategic, long-term questions over whether to stay independent or try to join the European Union.
Ravaged by the global financial crisis, Iceland’s three top banks collapsed in October, an emphatic end to an era of cheap foreign funding which had driven a decade-long economic boom.
“Our situation has never been worse in 90 years… and most people still don’t realise how serious it is,” said Vilhjalmur Bjarnason, a professor of finance at the University of Iceland.
“We can’t really see the end of what is happening right now,” said researcher Andrea Gudbjorg from opinion polling company Capacent. “There are no signs of a turnaround.”
Iceland’s 320,000 residents, among the most affluent in the world, are staring at a protracted recession with the economy seen shrinking 10 percent next year. Construction sites around Reykjavik have been deserted and unemployment is set to soar.
Prime Minister Geir Haarde is under growing pressure to resign, blamed by many for failing to spot the warning signs of the economic collapse and major lapses in regulations.
“The government has slept through this entire crisis,” said Jonina Sigurjous, a nurse. “How could it get so bad? We never had to worry about things like the crown (currency) or jobs.”
Consumer confidence has plummeted and the once high-flying Icelandic crown has effectively ceased trading.
To prevent an outflow of capital which would further weaken the crown, Icelanders can only buy limited amounts of foreign currency at their banks after presenting a valid ticket to go abroad.
A country in crisis:
– Iceland’s 320,000 people are staring at a protracted period of hardship with the economy expected to contract 10 percent next year.
– Bailouts from the IMF and elsewhere total $10 billion.
– Until its banking sector was deregulated in the late 1990s, the island’s economy was based mainly on fishing, and marine products.
– Iceland’s financial stature swelled as its banks expanded rapidly overseas.
– Important exports now include aluminum, ferro-silicon alloys, equipment and electronic machinery for fishing and fish processing, and pharmaceuticals.
– Icelandic businessmen had become well known for risk-taking and a fast, decisive approach to investments. The country had spread its business interests far and wide during the era of cheap finance.
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