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Iceland Reels From Global Financial Meltdown


This is All Things Considered from NPR News. I'm Melissa Block. If you're looking for the country hardest hit by the global economic crisis, Iceland would have to be at the top of the list. Tiny Iceland, just over 300,000 people, but it's teetering on the edge of bankruptcy. In the last three weeks, Iceland has nationalized three top banks. Its currency is in freefall. So how did this booming country, hailed in recent years as the Nordic Tiger, become de-fanged? Chad Thomas of Bloomberg News is in the Icelandic capital Reykjavik. And Chad, you've been reporting about a run on the markets in Iceland, but in this case we're talking about a run on supermarkets. What's going on?

Mr. CHAD THOMAS (Reporter, Bloomberg News): Yeah, it's interesting, Melissa. I was, over the weekend, in one of the larger grocery store chains here in Reykjavik, and the store manager said that last week was, quote, "crazy" for them and that they had basically doubled their sales. Now I don't want to give the impression that the store shelves are empty. They're not. But the issue is that the government doesn't have enough foreign currency, and this means that importers aren't able to get foreign currency to bring imports into Iceland. And so this has caused people to go into the stores and essentially stock up.

BLOCK: And when you talk to people, what are they're saying? How afraid are they?

Mr. THOMAS: People are definitely, Melissa, in really a shock, in disbelief, in terms of how quickly this has all fallen apart. And I was talking to a retiree, for example, who said, I don't know what's going to happen to my pension. I know it's going to be cut because the pension fund was invested in bank stocks. At the same time, his wife had actually held stocks in some of the banks. That's completely gone. She won't get anything back. Then you talk to someone else, and they say to you, you know, my sister's husband worked at the bank, he doesn't have a job anymore. So what you're really struck by when you walk down the streets here is how every single person has a personal tale about how this financial crisis has impacted them.

BLOCK: And Chad, all of this came about really quickly, both the rise and then the fall. Help us understand how Iceland went from a country that was really a pretty backward country, dependent on fishing, to a country so heavily involved and invested in banks and in foreign investment.

Mr. THOMAS: Yeah. Banks, essentially, were only privatized around 2001, 2002. Before that, the banks were traditional savings banks, and they were serving customers who came in with their money and deposited it in the bank. And in 2001, 2002, there was a decision to allow the banks to be privatized and invest overseas. And essentially what they did is, in order to invest overseas, they borrowed a lot of money. This is what, of course, banks were doing at this time all over the world. The difference in Iceland is that when the banks got in trouble, and they realized that the banks had a debt that was 12 times what the GDP is in Iceland, the government said we don't have the money to bail out these banks. And so that's where you came, then, into the nationalization.

BLOCK: Well, looking forward, the Icelandic government has been turning to its Nordic neighbors for help. It seems to get no love there. Now it has representatives in Moscow trying to get a $5 billion bailout. How's that going over with Icelanders?

Mr. THOMAS: You sense that there is some bitterness that the West hasn't stepped up. Western Europe hasn't said, OK, we'll come in, we'll help you out. But on the other hand, they say, you know, if Russia wants to help us, then we're happy to have the cash.

BLOCK: Are there people in Iceland now saying, you know, maybe it is time to join the European Union?

Mr. THOMAS: Every single business person I talked to said we need to start negotiations with the European Union as soon as we can on entry, and we need the euro. Without a stable currency, one business person was telling me, we simply cannot continue to function as a country.

BLOCK: Thank you, Chad.

Mr. THOMAS: Thank you.

BLOCK: Chad Thomas is the Helsinki bureau chief for Bloomberg News. He's in Reykjavik reporting on the economic crisis there this week. Transcript provided by NPR, Copyright NPR.

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