No need to worry about Iceland

In 2006, Brynjólfur Eyjólfsson, NHH graduate and father of three, went home to Iceland with no worries about the future. A year and a half later, his wife lost her job and his job as a consultant had changed over night. His clients couldn't pay what they owed. In Norwegian

18.06.2012 - Sigrid Folkestad (translated by Silje Gjerde/Allegro)

'Before the collapse, as consultants we were very involved in developing companies and markets. After the collapse, we were just as strongly involved, but this time in the restructuring process. We helped to build up the companies, but we also helped to downsize them.'

Fish are lining people's pockets

We are visiting HB Grandi, one of the biggest fisheries companies in Iceland. Brynjólfur Eyjólfsson takes us up to a canteen with a fantastic view of the ocean.

After completing the master's programme in International Business (MIB) at NHH and having worked at Møreforsking in Ålesund, Eyjólfsson and his family went home to Iceland. He was lucky. The economy exceeded all expectations. Iceland was a financial success story. The banks Glitnir, Kaupthing and Landsbanki grew at a dramatic pace. Kaupthing was ranked as the world's fastest growing bank. Iceland was called a financial miracle, and Icelanders had few concerns. Today, Icelanders agree that the bank managers were greedy and the politicians incompetent.

'There is no need to worry about Iceland in a long-term perspective, because the country has plenty of resources, with fish, energy, clean water and oil discoveries in Icelandic waters,' says Binni, as he is also known.

The nightclub Sodoma, with its infamous toilets, is located a few hundred metres up from the harbour. There, the male guests can (pardon the expression) piss on pictures of the financial barons who helped to lead Iceland into financial and political chaos. Today, foreign capital is finding its way to Iceland - unlike during the heyday of Iceland's economy, when Icelandic companies bought up everything they could abroad. Fish exports are lining Icelanders' pockets. Iceland is back to basics.

On the floor below us, people are processing the fish that arrived earlier in the day. Big halls with freshly scrubbed counters, running water and machines and fans that make a loud, buzzing sound. One of the trawlers came in earlier in the day. It is now late in the afternoon, and the fish is already on its way out into the world, to Germany, the USA or Asia.

After his MIB studies at NHH and after working for a while in Ålesund, Brynjólfur Eyjólfsson and his family moved home to Iceland in 2006. There have been times when he has regretted that decision. The future looks brighter now, however. Eyjólfsson recently resigned from his job as a consultant for PwC after having received an offer of employment as a market analyst in the company HB Grandi.

Foto: Helge Skodvin

'Yes, it was dramatic'

We fetch some coffee and find a fairly quiet spot on a sofa outside the canteen. No one turns up their noses at the smell of fish in the corridors. These are good times for the fisheries industry, and Binni has found a new, attractive job in this field. His job is to search for new markets and find out what consumers want. He is on home ground in that respect, with fisheries studies from Iceland and the MIB programme from the Norwegian School of Economics.

In 2008, his family was doing well in their home country. Their fourth child had just been born, their daughter Sandra. His wife worked as a teacher, and he had a lucrative job as a consultant for a company that was later acquired by PwC.

'We had a lot of work before the collapse. An awful lot. But suddenly that changed, and we had a lot less to do.'

'Did you find that dramatic?'

'Yes, it was dramatic, and it happened so suddenly. The state took over the three banks. That was surprising, and just a week later, all of the three biggest banks had collapsed. In the space of a few weeks, we went from thinking everything was fine to having to acknowledge the collapse. I was in London when the banks finally fell. The currency collapsed, and suddenly my Icelandic krónur were worth much less abroad. The hamburger I bought in London that day was very expensive.'

'Didn't people worry about what would happen to Iceland's economy?'

'In retrospect, everyone can see that something like that was bound happen. Some people warned against a dramatic slump, while others didn't believe it would happen. Opinion differed.'

In the years before Binni returned home, the stock exchange in Iceland had risen by 400%. Financial institutions acquired foreign companies on a grand scale. The banks were willing partners and granted enormous loans. Towards the end, the banks had receivables worth nine times Iceland's GDP, but what did the Central Bank of Iceland say? That the bubble wouldn't burst.

Blame each other

Today, they all blame each other: the politicians, the Financial Supervisory Authority, the Central Bank, the former bank managers, the auditors and the public. The liquidated bank Landsbanki recently took the auditors from PwC to court. There are many cases under investigation. Binni worked in PwC's advisory department and later as a marketing manager.

'As consultants, you probably profited from both the boom and the collapse?'

'We grew quickly before the collapse, but not afterwards. Instead, business has declined.'

'When the situation was at its worst, how did it affect your job?'

'We had projects that were half-finished. The customers called and said: "You have to stop now. We can pay you for what you have already done, but no more." So there were huge changes in some projects.'

Some of his colleagues were dismissed. 'Everyone knows someone who has lost their job,' he says. His wife had a temporary position as a teacher and lost her job shortly after the collapse.

'We probably managed better than many others, but we certainly felt the effect on our mortgage, among other things. Here, mortgages are indexed, so that the mortgage increases in step with inflation.'

Understand people who moved away

Prior to the financial crisis, Iceland experienced very high inflation. As a result, many people took up foreign currency loans at considerably higher risk, but with the banks' blessing. Loans in yens or euros became common. When the Icelandic króna collapsed, the loan amounts increased. Households' loans increased every month.

In 2009, the family seriously considered moving back to Norway.

'Things did not look good, and we didn't feel we had a future in Iceland. We talked about returning to Norway, but eventually decided to stay. Many Icelanders have moved to Norway.'

According to figures from Statistics Iceland, more than 8,400 people emigrated from Iceland between 2008 and 2011, while in the three golden years before the collapse, 14,200 people migrated to Iceland.

'Do you understand why so many people moved away from Iceland?'

'Absolutely. People were not very optimistic about the future. If you had a good job, you could manage. If I had lost my job, we would have had to move. At the same time, many Icelanders move abroad to pursue an education. If you have lived abroad once, it's easier to do so again.'

'Many Icelanders have moved back now, especially people who work in the building and construction industry. The collapse had a direct and almost immediate effect on many construction workers. It was relatively easy for them to find jobs in Norway. Things are starting to improve now,' says the NHH graduate, 'so some people are returning.'

The politicians are not taking responsibility

'Has Iceland recovered from the financial and political chaos, in your opinion?'

'People in Iceland do not agree on that either. Icelanders feel that that things haven't been properly sorted out. Many cases have still not been settled. People have not been held accountable. If there was corruption prior to the collapse, as many people believe, the wish for more transparency is a legitimate one, but we don't see it happening. Things are not more transparent, and not everything is being done above board. Many people are dissatisfied with this and feel that no real changes have been made. The politicians are not taking responsibility.'

'The financial collapse, then the 2010 eruption of Eyjafjallajökull, put Iceland on the map, and served as marketing for Iceland,' says the economist. Icelanders have made good use of this. Big marketing campaigns were initiated while parts of the country were practically buried under ash and people moved away in great numbers.

'The tourist industry was seen as a means of rescuing the country from the crisis. Now we have a lot of tourists,' he says.

It is getting late in the day, and his wife and four children are waiting at home. Binni is going to pop home before heading out for a long run in the sleet and wind. He is training for the London Marathon at the end of April. Before getting into his car, he invites us to his home in Grundarhús, a 15-minute drive from Reykjavik, the following day.

World-famous humarsupa

'One humarsupa,' the woman behind the counter shouts. 'That will be 1,100 krónur.'

Further along the harbour, near HB Grandi, you come to the small café Sea Baron. It has survived the financial barons and the yuppies. They sell lobster soup for around NOK 50, made according to an old recipe from the 1970s. The place has been mentioned in guidebooks and newspaper articles all over the world.

The former fish shop has been upgraded to a bare minimum. The guests sit on small barrels around old formica tables. Three of HB Grandi's fishing boats are moored right outside the window, but they won't be there for long. Grandi has about 15 boats in full operation.

In the city's shopping street, tourists stop at small designer shops with jewellery collections, clothes and - not least - traditional Icelandic woollen jumpers. They are the hottest fashion trend in Reykjavik.

'I've knitted this,' says Katrín Tinna Gauksdóttir.

She shows us a thick knitted cardigan with the traditional Icelandic pattern. Hundreds of cardigans and jumpers in white, grey and brown are lying neatly stacked on shelves covering the walls from floor to ceiling.

'The jumpers have become really popular. Everyone uses them, and both young and old people are knitting more than ever. The people who knit the jumpers make money from them, but this is really about people being proud of their country,' says Gauksdóttir.

She moved back to Iceland last year after having studied journalism in Denmark for several years. This summer she will be working as a journalist in Frætturbladet.

Katrín is proud to be an Icelander, and she would never leave the island.

'Leave Iceland? Never! I would never do that. Many have moved away, but they'll come back.'

Katrín Tinna Gauksdóttir is a trained journalist, but is currently selling traditional Icelandic jumpers. 'The jumpers have become really popular. Everyone uses them, and people are knitting more than ever. It's about national pride.'

Foto: Helge Skodvin

'The tourists have really discovered Iceland'

Yvonne Smith works at the tourist information office at Icelandic Travel Market in the heart of Reykjavik's shopping area.

'The tourists have really discovered Iceland. There was a real boom in January and February. We broke all records,' says Smith, who is half English and half Icelandic.

Traditionally, many Europeans holiday in Iceland, but there are even more this year,' she says. Asia, and especially China, account for the biggest increase in tourists.

'This year is completely different from other years. Iceland is managing to create growth, and not only in the tourism industry. Just think about all the energy and the fishing - they are going to mean a lot to Iceland's future. I think the collapse was a good thing, and it had to happen. Ordinary people and investors had enormous loans at ludicrous interest rates. That couldn't continue,' says Smith.

Last year, Yvonne Smith completed her bachelor's degree in environmental science in England. She is now working at the tourist information in the centre of Reykjavik.

Foto: Helge Skodvin

A heitur pottur behind the house

'Welcome,' says Pálína, Binni's wife.

Just behind the family's terraced house a few kilometres from Reykjavik, steam is rising from one of Iceland's many hot springs. Children from the neighbourhood jump into the pool, which is open every day from early morning to late in the afternoon. There are several small heitur pottur or hot tubs around the pool area.

The family's two eldest boys, Eyjólfur (14) and Bjarki (11), are playing a game on the sofa. Three-year old Sandra, the youngest daughter, is playing in the living room and is getting most attention. Marías Bergsveinn (9) is sitting at the dining table. He was born in Bergen and his middle name is a tribute to Bergen. They have all watched Norwegian children's programmes, and their parents follow the news from Norway. Binni himself is having a hard time at the moment, as he supports Brann, the big football team in Bergen.

Pálína tells us about the period around 2008. She was working in a temporary position as a teacher when she took maternity leave. When she was ready to return to work, she found that the door was closed.

'Many of those working in the school system found jobs in other sectors, such as finance, but after 2008, they returned to the school system.'

The family has managed to find some time to spend together on a Thursday afternoon, in between handball and football practice and training for a marathon. Marías Bergsveinn (9), Eyjólfur (14), Pálína (mother), Bjarki (11), Sandra (3) and Brynjólfur (father).

Foto: Helge Skodvin

Worried about 'little brother' Iceland

Eventually, Pálína was offered a job as a teacher again, and the family started believing that they had a good future in Iceland. A lot has changed, however. Unemployment is higher than normal in Iceland, and young people do not have the money to buy a home. Many have cut down on restaurant visits and trips abroad. For older generations, the years after 2008 have been tough.

'Older people are very negative. Many of them were well on the way to paying off their mortgages, and suddenly house prices dropped and mortgages increased. Their houses were going to be their pensions. They planned to sell their houses, move into something smaller and stop working. So many older people have really felt the consequences of the collapse. The financial chaos has done a lot of damage for this generation as well, and not just for young people on Iceland.'

'Many have profited from this, however,' says Binni. 'Getting a loan to buy shares was easy. The only security was the shares themselves. A lot of people made a lot of money, but after the collapse they were unable to pay back the loans, which had to be written off.'

Many Icelanders have been offered help from people abroad. Their situation received a lot of attention in 2008. Many were worried about their 'little brother' and wanted to help. A few weeks after the collapse, Binni received an e-mail from Norway: 'Do you have enough food? Do you need anything, is there anything we can do?'

But, as Brynjólfur Eyjólfsson says:

'There's no need to worry about Iceland.'

This article was published in NHH Bulletin number 2-2012.