Inside Iceland's recovery: football, fish and tourism

The world of high finance led the nation of 300,000 into the mire of 2008's crash. But now they are booming again.

by Matthew Gwyther
Last Updated: 20 Aug 2020

I was last here in Iceland in the winter of 2007. In a blizzard. I took part in a boozy celebration on Laugavegur, the main drag in downtown Reykjavik with the staff of Landsbanki who had just got away a $2.25 billion bond issue.

These were the days when the pillaging Viking hoards from Iceland were running riot across Europe buying up everything from Hamleys to then lowly West Ham United, rather than rampaging through Euro 2016 in France. The country with a population of 323,000 - smaller than the London Borough of Lewisham - went berserk on a wave of leverage and borrowing.

Here’s what I observed then:

This sort of exuberance is a Reykjavik commonplace, as are the Laugavegur pavement pizzas the following morning. Iceland has undergone an extraordinary transformation in the past 15 years. From a dour, state-run volcanic wilderness part-girdled by the Arctic Circle, famous for its geysers, sun-free winters and belligerent cod-defending gunboats, the island has suddenly turned cool and interesting. And the world's attention has been drawn not just by its sporting and cultural exports such as Eidur Gudjohnsen and Bjork; the latter remains an acquired taste.

The Icelanders have emerged from a murky, Middle-Earth nowhere to become one of the most acquisitively entrepreneurial peoples on the planet. And, as we know in the UK, they have been doing some heavy-duty shopping abroad for new assets. Here, they now own businesses from Hamleys toyshop to the bank Singer & Friedlander, from retail emporium House of Fraser to Geest, the food producer. They made a tidy £100 million in a quickish turn on easyJet shares. Landsbanki has burst on to the normally sedate UK personal savings account scene with Icesave, whose amazingly high interest rate combined with instant access has been acclaimed by BBC ‘Moneybox’ listeners throughout the land.

Things didn’t seem quite right to me and I was proved correct. Less than a year later the balloon went up and the country effectively went bust. Many of those Moneybox listeners got very hot under the collar although they eventually got their money back in their piggybanks. Unlike many other nations who appear to have let many bankers off with little more than a rap over the knuckles, in Iceland a number of them have been sent to prison including three senior figures from Landsbanki.

The years following the painful events of 2008 have been a long, slow return to the knitting which means firstly re-embracing the cod. The Icelanders got involved in a cod war with us back in the 70s and have always jealously protected their stocks by banning others from their 100 mile fishing limit. The boats come in laden with hundreds of thousands of the large fish.

But they don’t just want to fill fish fingers. They now want to go up the value chain, as Erla Osk Petursdottir boss of Visir explained. ‘My grandfather started this business 50 years ago and fish is in my blood. Fish was the market that didn’t crack after the Crash. But we don’t just want it to be the same as before.'

Icelandic grub: good for what ails you.

So while they still export thousands of tons of dried fish heads to Nigeria (where they are a staple used in soup) and salted cod to Italy, they are also getting into cosmetics and pharma where the margins are far higher. Cod skin can be made into collagen which is pushed as a health product to be sprinkled into water to give your skin ‘strength and elasticity’ and even help aching joints. Getting higher up the value pyramid can help to double the value of each dead, raw fish.

MT has been invited up to a conference in Reykjavik to examine the relationship between sport and business. Motivation, teamwork and results. Guest speakers are Kevin Keegan and David Moyes who, currently lacking much else in managerial employment, probably were enticed up by a few thousand krona.

The problem with attempting to get scientific on the subject is soon shown when the discussion turns to the unexpectedly triumphant  Leicester City FC. It’s been hilarious watching the footie pundits attempting to explain the success of Ranieri’s workaday warriors. You can’t do it . Even Ranieri hadn't the foggiest how they came first. (Although one of our contributors, former NBA basketball coach John Amaechi, has a go here)

Never mind. The Icelanders are football crazy. When it’s too cold and dark to play outside during the winter they turn to huge heated hangars decked with the latest in fake grass. From the age of 5 the kids - boys and girls - are coached by fully qualified specialists.  On the way to their first appearance at Euro 2016, Iceland even managed to knock out the mighty Dutch. (Who could learn some togetherness from the Icelanders.)

Ranked 133 in the world four years ago, the national team has leapt one hundred  places thanks largely to the millions invested in facilities during the boom years.  When they kick off against Portugal tonight they will be  the smallest nation ever to reach a major tournament.

And while fishing is still highly important to the Icelandic economy it is now rivalled by tourism. The country has suddenly become one of the most fashionable destinations Europe again, only this time not for bankers but fans of TV drama. This year, 1.6 million visitors are expected. ‘Game of Thrones’, which is filmed here in the weird Tolkien-like landscape, has played a big role, and Iceland is also a big draw for those in love with hot springs and the big, stark outdoors. Even Justin Bieber shot a video prancing around the landscape. You can fly everywhere from the old NATO base at Keflavik. Even Bristol.  

The problem is the country cannot cope with the numbers. There are simply not enough hotel rooms. Cue Airbnb which has exploded into life. The numbers using the sharing service went up 125% last year with the result that few members of the indigenous population, especially younger people, can find affordable flats to rent.

Geothermal energy is proving useful for both electricity and tourism.

So the government is poised to curb Airbnb in an effort to protect its spectacular unspoilt landscape and traditional lifestyle. Proposed legislation seeks to restrict the number of days residents can offer Airbnb rentals in their properties to 90 days a year before they get hit with a business tax.

Back in 2007 I met a professor of Economics from the University of Iceland called Tryggvi Thor Herbertsson. He was a classic Icelander, speaking near-perfect idiomatic English: bright, thoughtful, polite, with a PhD from Denmark. I managed to track him down again nine years later.

What exactly happened? ‘Well, I think the end began with the five billion euro leveraged buyout of the pharma company Actavis financed by Deutsche Bank. That was a deal too far. ’

[Actavis was taken private by the legendary tycoon Bjorgolfur Thor Bjorgolfsson, but Deutsche failed to syndicate the debt to other banks and investors. Bjoggi, as he’s known, was the most high profile loser from the crash and issued this statement to his fellow Icelanders : I the undersigned, Björgólfur Thor, request forgiveness from all Icelanders for my role in the asset - and debt- bubble that led to the collapse of the Icelandic banking system. I request your forgiveness for my complacency towards the danger signs which arose. I request forgiveness for having not succeeded in following my instincts when I realised the danger. I request your forgiveness.]

‘Once Lehmans went we were toppled. It was amazing how much debt we had accumulated. Ten times GDP.’ He raises his eyebrows. The krona collapsed, the mad property bubble burst and the 300,000 went through a very hard few years.

What did he think about the way the bankers were treated in his country?  ‘My opinion is that we were not dealing with organised criminal behaviour. People, when faced with something completely foreign to them did something they should not have done. I think we were far too harsh in seeking retribution against those in finance.

‘Nobody had the experience to deal with a financial crisis. There was no collective memory. But just look at history - the South Sea Company. It’s all there. It made me recall and accept Marx’s analysis that markets are inherently unstable. He, of course, has a rather romantic view that we can change the system and return to the garden of Eden.’

Tryggvi’s life changed abruptly when the cod liver hit the fan. Suddenly the mild-mannered academic in tweed jacket was plucked from relative obscurity to become a special advisor to the Prime Minister and was sitting on the other side of the table negotiating with the hard men from the IMF.

‘I oversaw taking over the banks. But I was always concerned by the arguments for austerity. Our problem in Iceland was liquidity. I could see that widespread austerity would be very harmful indeed for the welfare of the general public.’

He resigned in October 2008. ‘We had a very small, volatile economy which was vulnerable to drastic swings. I think we could become one of the most prosperous countries in the world [energy costs are low and the source sustainable thanks to geo-thermal and hydroelectric power] but we’d have to accept a planned economy. The market always leads to excesses.’

On my previous trip in 2008 I read The Viking's Guide to Good Business, a copy of which was left in my hotel room. This pithy volume uses as its source material an old Nordic text from 1240 called The King's Mirror. 'Who are merchants?' is the book's first poser. Answer: 'The finest men often enter this class. But much depends on whether you resemble those who are true merchants, or others who call themselves merchants but are actually swindlers or cheats and trade falsely.'

Faith in the merchants has been severely dented and a backlash against the business and political elite, as Tryggvi observes, was continued recently when the PM was caught up in the Panama Papers scandal. But compared to the mess that still engulfs Greece,  Iceland is not in a bad place. It wasn’t saddled with a Euro that could not be devalued for a start. It has even started paying back its debts early. And it has declined to join the EU...

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