Reykjavik Letter: Visions of Nordic Nirvana at odds with reality

Áramótaskaupið is possibly the most popular television show in the world. Viewing figures for the annual skit – the name roughly translates as "New Year's Ridicule" – are routinely in excess of 90 per cent of Iceland's almost 330,000-strong population.

In the final scene of this year's Skaupið a pair of attractive 20-somethings in knitted sweaters sat sipping coffee in a hip Reykjavik café. An American couple nearby ask, in English, "is it true that people here wrote their own constitution?" "Yes," replies a hirsute Icelander solemnly.

“And women are equal to men?” “Yes.” “And you jailed the bankers?” “Yes.” A small halo appears over his head.

The sketch fairly represents reality. In February Iceland’s supreme court upheld convictions for market manipulation handed down to four senior staff at the failed Kaupthing bank for their part in one of the biggest collapses in financial history.

However, visions of Iceland as a Nordic Nirvana – burnt bondholders, jailed bankers, a crowd-sourced constitution – often clash with reality here.

The Icelandic economy has recovered since the kreppa, the 2008 banking meltdown. But the cost of living remains painfully high, even if the country is far more affordable for visitors than in the boom years. The currency remains subject to capital controls and tens of thousands struggle with mortgage debt. Household insolvency is at a record high.

Most of the policies much-celebrated internationally, such as the capping of mortgages taken out in foreign currency and the decision to maintain minimum standards of social provision, were implemented by a left-wing coalition elected in 2009.

That government, however, was unable to deal with the most pressing question facing many Icelanders: the crippling debt owed by those who bought property in local currency during the decade-long housing boom that came to a shuddering halt when the kreppa hit, leaving Iceland's banks with debts 10 times the nation's GDP.

In 2013 elections the Independence Party was returned to power. Iceland's answer to Fianna Fáil – in fact the party topped every poll for 80 years until 2009 – formed a coalition, headed by the Progressive Party's cherub-faced leader Sigmundur Davíð Gunnlaugsson.

Fishing industry

Gunnlaugsson’s government has pushed ahead with what looks to many like a return to pre-crash economics. A wealth tax has been abolished and levies lowered on the politically-powerful fishing industry.

At the beginning of the year VAT on food was increased from 7 per cent to 11 per cent, while duty on higher value-added products was reduced. A tax on sugar, introduced to tackle obesity, has been abolished.

The health service is creaking; steep deflation of the króna meant huge real-term budget reductions. Hundreds of jobs were lost and much-needed repairs and maintenance postponed. Iceland is losing doctors at a rate of 66 per year, many leaving for Norway. At the same time, the country’s first private healthcare facility has just been given the green light.

Moves are afoot to arm Iceland’s police. The country has just a handful of murders a year and one of the lowest crime rates in the world.

But the most controversial proposal has been a “nature access pass”. Last year Iceland’s government announced plans to pay for much-needed new tourist facilities by charging 1,500 króna (€10) to enjoy the country’s landscape.

Such moves have not gone unchallenged. On March 15th, an estimated 7,000 people took to the streets of Reykjavik when the government announced plans to withdraw the country's application for European Union membership. Icelanders are divided on joining the EU but most want a vote on the issue.

Iceland's favourite daughter, Björk, recently accused the "crazy insane government" of "going back to what it was before the bank crash, but five times worse. All the changes that the left made – and I'm not for a minute saying that I'm left, I don't see myself as left or right – but in five minutes they've gone back and privatised everything".

Disillusionment with mainstream politics is palpable. The much-vaunted “wiki-constitution” has run into the sand. Two once-marginal parties, the Pirate Party and Bright Future, now command almost 30 per cent support between them in opinion polls.

Iceland is still recovering from the "trauma" of the kreppa, says Huginn Freyr Thorsteinsson, a former adviser to the Left-Green minister of finance. "These things are not only economic. There is a lot of psychological and trust issues."

The recent supreme court ruling has shown the Icelandic public that the bankers who led the country to ruin will not escape punishment. But for many Icelanders, life has improved little since that dark winter of 2008.

“The balance sheet has improved. We are in a better financial position than Greece and Ireland but people ask why can’t I pay my mortgage?” says Thorsteinsson. “Why is my salary not going up?”