Iceland (population: 296,750) deregulated financial markets in the mid-1990s. Capital from abroad flowed in, the stock market boomed, and Iceland was transformed from a lonely fishing outpost and air refueling stop to a wealthy financial center. Companies like former supermarket chain the Baugur Group invested in European businesses (Danish department stores, British real estate and food, clothing, jewellery and toy stores). On-line banking allowed small investors in the UK to bank with Icelandic firms.
That was then. Today the Icelandic krona is in free-fall, the government (which includes the Althingi, oldest legislative body in the world) is nationalizing banks. Britain is guaranteeing accounts of small UK investors in Icelandic banks, and Sweden and Russia are loaning money to Iceland to stem the collapse. Some US politicians are concerned that Russia is buying into a NATO ally with a $5.4 billion loan. Iceland’s government is warning that it is on the edge of bankruptcy. The Icelandic financial sector grew with capital from many countries; its bankruptcy would have far-flung repercussions.
In the US, we have a our “TGIF” (thank God it’s Friday) weekend traditions. In Iceland, many people line up at the government-run liquor stores at five on Friday to stock up for heroic weekend drinking. America’s Icelandic culture consultant, Björk Guðmundsdóttir, explains:
I come from a country where, from the age of 15, you drink a litre of vodka, every Friday, straight from the bottle.
I watched my grandparents doing that and it’s been my pattern, just like it has been my family’s release for a thousand years.
As another correspondent puts it, somewhat less charmingly, “In Iceland there is nothing wrong with being seen passed out in a puddle of your own vomit, just make sure it’s between 23:00 on a Friday and 09:00 on a Sunday.”
Fewer local customers will be buying imported wines and liquor this weekend; more will buy the local potato-based Brennivin. The financial drunk of financial deregulation is ending with a messy, crushing Sunday hangover.
Image by Mike Licht. Download a copy here. Creative Commons license; credit Mike Licht, NotionsCapital.com.
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