The Argosy reports about Iceland's frozen economy:
Iceland's frozen economy
How Iceland entered an economic freefall, and why Britain labeled it a terrorist nation
By Tom Llewellin
“Iceland is bankrupt,” proclaimed Arsaell Valfells, a University of Iceland professor, in October.
At that point, the tiny Nordic nation of 300,000 had already been under heavy strain, with its stock market shut down, its largest bank being nationalized, and the value of the Icelandic krona deteriorating to near-junk status.
Protests from Icelanders grew more and more frequent over alleged government mishandling of the moves made to desperately shore up Iceland's tiny economy. Throwing another wrench into the machine, Iceland's government itself announced later in the month that it was unable to meet the country's budgetary needs.
Such a move was perhaps a little unusual for a sophisticated Scandinavian country that had consistently topped UN lists as the most developed country in the world, but nonetheless believable in the “new economic order” where previously unshakable titans have begun to fall.
However, Britain was especially displeased by the fact that the — now nationalized — Landsbanki bank contained about $39 billion (CAD) of British money before its nationalization. The British government, despite the fact that the entire country's GDP is only $12 billion annually, demanded that Iceland's government repay British depositors the $6 billion of failed assets, which Iceland's finance minister told the Royal Treasury that it would do.
The following week, Alastair Darling, the Chancellor of the Exchequer, appeared on British radio on October 8, claiming that “Iceland has no intention of honouring their commitments to the [British] government.”
Later that day, a curious sight greeted visitors to the Royal Treasury's website. On a mothballed page listing countries subject to embargoes and financial sanctions, between Iraq and Syria sat a new arrival - Iceland.
As it turns out, the Labour government of Gordon Brown had invoked a heavy-handed 2001 antiterrorism bill — the country's equivalent to Bill C-36 or the PATRIOT Act — against Landsbanki, the Central Bank of Iceland, and the Icelandic government. Therefore, Iceland was officially considered a terrorist haven.
The bill is only usually applied to countries designated as “rogue states,” with the aim of paralyzing or severely weakening those countries' regimes as well as their popular resolve through financial sanctions. The result of such sanctions are prohibitions on trade with the country in question, which also make it impossible to transfer money or goods.
By association, Icelanders are considered terrorists, said Icelandic Prime Minister Geir Haarde to TIME magazine two weeks ago.
Using that law was the only way for Britain to freeze the British assets of Landsbanki and therefore recoup investors' money at some future time.
However, it had the side-effect of delivering a staggering blow against a weakened country that sees itself as a “scapegoat to distract attention [from British incompetence in managing their own debt],” said the Guardian.
Even in Britain, 100,000 jobs depend directly on Icelandic investment, and the fate of the $39 billion remains unresolved. Icelandic students studying abroad have faced student loans that have disintegrated in value, and are unable to receive any money at all from home, reported TIME.
A petition to the British government by the hastily-formed Icelanders Are Not Terrorists has received over 80,000 signatures, with a flood of user-contributed messages delivering words of support for the Icelandic people and condemnation for the actions of the British, whom Icelanders have traditionally admired for centuries. An exhibition of photos of 79 “Icelandic Terrorists” by Icelandic photographer Thorkell Thorkelsson drew massive crowds when it was unveiled three weeks ago in Reykjavik, the country's capital.
Since Britain is the biggest importer of goods to the country, Icelanders are finding that getting their hands on some vital consumer goods is proving difficult. Icelandic companies have found that doing business and trading currencies with companies in other countries is proving to be very difficult or impossible, due to the Treasury's sanctions.
According to a press release by the group behind the petition, recouping the money the British government has claimed it is owed will be significantly more difficult thanks to the fallout of their actions.
The country was ranked by the United Nations as the most developed country in the world, as well as the place with the highest quality of life, last year. In addition, Reporters Sans Frontières of France ranked it as the most free and democratic country in the world based on freedom of the press.
Like most other Western countries, Iceland was shouldering a heavy consumer debt burden, with consumer use of credit soaring between 1996 and 2008. Demand for consumer goods, which are traditionally extremely expensive because they must be shipped over long distances, was at insatiably high levels.
Now, in the wake of October's events, Iceland has debt worth 110% of its gross domestic product, according to the IMF.
My reaction: In the span of one year, Iceland has gone from being "the most developed country in the world" to a terrorist nation with a failed economy and currency. The only question left is: how far will Iceland fall? Will there be anarchy, violence, and starvation?
I will continue to track developments in Iceland for the grim preview it offers the US.