Meltdown Iceland: lessons to learn

This book review article was published in Tribune
Icy warning: the Nordic saga of a Bourbon country that has learned – and forgotten – nothing

18 February 2010

Meltdown Iceland by Roger Boyes (Bloomsbury, £12.99)

Pity poor Iceland. Lost in the icy seas of the Northern Atlantic between Europe and North America, this ancient democracy has only known poverty and cod for centuries. Bullied by Roy Hattersley when the Daily Mail columnist was, briefly, a minister decades ago and sailed forth to lose the cod war, Iceland took its revenge on Britain by stealing billions of pounds from poor British investors in one of the greatest pyramid schemes of all time.

Roger Boyes is one of the best foreign correspondents of his generation. He has covered central and eastern Europe with style, and a sense of history, for The Times for 30 years. Now he has written a gripping and understandable account of the crisis of world capitalism by focusing on the small nation of Iceland.

Those who struggle to understand the width and depth of the crisis and are swamped by figures with unending zeroes in them can read this book and comprehend how greed conquered politics.

Iceland has many aspects of Nordic politics but with one fatal failing. The island of fishermen and geysers fell under the spell of uncontrolled Thatcherism. In a bigger country what was a high temperature became in Iceland a raging fever as Icelanders borrowed and borrowed both to finance a massive presence in Wall Street and the City of London and, at a more humdrum level, to build ludicrous homes and buy ludicrous cars as if Reykjavik was Marbella and Iceland was Dubai.

The British establishment fell in love with Iceland. The Audit Commission, supposedly the stern custodian of public money, invested in the Icelandic bank Kaupthing. So did local authorities acting on advice from government approved investment advisers. Now Iceland is faced with paying back billions to Britain and the Netherlands. Each Icelandic citizen faces a debt of 12,000 euros as London demands Versailles type reparations. No local authority treasurer has paid a price for wasting our council tax money in these unreliable banks and no one from the Audit Commission has resigned.

Boyes quotes a very senior British political leader telling bankers in the City in June 2007: “This is an era that history will record as a new golden age for the City of London. Many who advised me, including not a few newspapers, favoured a regulatory crack down. I believe we were right not to go down that road.”

Labour loyalty prevents me from naming who made that statement but can Iceland be blamed for taking its cue about de-regulated financial behaviour from big brother Britain and its political leaders?

The question is whether Iceland can be a lesson as we seek to shape market economics that do not end in the disaster of the lost hopes and millions of victims of the crash. To be sure, the ship has not sunk as fast as after 1929 but we are still holed below the waterline and no one has designed a new model that allows us to set sail with confidence again.

David Oddsson, the man responsible for leading Iceland to disaster as a boastful Thatcherite prime minister and then a de-regulatory governor of the central bank, is now editor of the main right-wing newspaper there. Iceland’s current president endorsed and covered the follies of Iceland’s financial adventurism. Iceland is the original Bourbon country, having learned and forgotten nothing as it leaves the men who ruined a nation in high office.

Britain and the Netherlands should look again at the over-harsh settlement they have imposed to get reparations from Iceland. But if Icelanders are still prepared to be led by the men who led them to disaster, why should the rest of the world bother? Boyes’ book is a short saga full of warnings. It will happen again, but this time to a nation with many times the population of Iceland.