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COMMENTARY
January 31, 2009
Iceland
Iceland is in a bit of a mess at the moment -- and for the foreseeable future. Her banks were exceptionally "ambitious" in leveraging their way into what they believed would be a perpetual offshore boom in financial services. This is now perceived more as a planetary kiting scheme. Somewhere along the line, Iceland's three major banks forgot such home truths as that, with 25 times leverage, a four percent decline in asset value wipes out your equity. It's a simple thing, but even bankers get absent-minded. And now they are all defunct.Iceland's government, as most, liked to regulate the little things to death, while leaving the greater fiduciary questions to the pleasure of the free market -- the opposite of a government's traditional role. It blew the bag in possible rescue schemes, before itself collapsing in ignominy. The country's fishing stocks were long since depleted, and don't count on global warming to deliver an agricultural future. That leaves about 300,000 Icelandic souls stranded on a volcanic outcrop of the Mid-Atlantic Ridge, only a few leagues short of the midday Arctic darkness. True, they lived a thousand years in those conditions, but that was when there were still fish, and before the entrancing glister of post-modernity. Moreover, they were not in hock, for at least $40K per head -- for just the last IMF loan -- on top of levels of consumer debt outpacing even the earnings that have since been lost. Small she may remain, but Iceland has become the west's first financial black hole. I've met a few Icelanders, and liked them a lot: I don't feel good about this. From what I can make out, things will soon get worse. As I write, a Left-Green coalition is negotiating the spoils, or anti-spoils, of government. Assuming this holds, they will inevitably be presented such false hope as the European Union can provide, as part of an opportunistic power grab. The cable from Brussels reads (and I paraphrase), "Join now, and we can talk about picking up your tab." What Europe will want is a share in Iceland's remaining fishery. The next cable should read, "To you from dying hands we throw," for the EU is currently in no position to rescue anybody. It is not just the international credit crisis, and the attendant fall of "consumer confidence," nor entirely the fallout from astronomically expensive environmental schemes. It is rather the impact of all these things on decades of bureaucratic castle-building. It's "the last fat lady singing on the camel" as one of my correspondents put it. "Eurosclerosis" was assumed to be a permanent, debilitating condition. But we forget that eventually the fiscal drugs become unavailing, and the patient dies. Iceland might be small enough to carry, were she the only load, but it now appears Britain is travelling down the same chute, with her pound collapsing, and the asset values of her banks melting away. She, too, has borrowed and spent herself into perdition, only a little behind Iceland's new world record. Warnings of a specifically "Icelandic" collapse now appear in the pages of such sober journals as the Financial Times. The outgoing prime minister of Iceland, Geir Haarde, fell this week, less from abstract considerations of finance, than from the more proximate cause of rioting in Reykjavik. No one could have imagined such a thing, the day before it happened. For as the reality of their complete ruin sinks in, people can become violent. They need a scapegoat, and of course the politician of the moment makes as good a target as any. Then they need a magician to replace him, an Obama of some kind, to make things worse. "Social unrest," as it is politely termed, had already become almost institutionalized in Greece, and has now spread to Bulgaria, Lithuania, and Latvia. Compare, if you will, the present trouble in France, which is queued behind Britain for the steep slide, but where the Sarkozy government's rather modest effort to tame public profligacy has now been met with a general strike. According to polls, 70 per cent of the French identify with the strikers. This, to my knowledge, was never the case before. Various reasonably credible economic forecasters are projecting huge job losses across Europe this year, from which the ugly urban street forces of the past may be re-assembled. We may therefore know by summer if we were wrong to think the collapse of Europe was still a few decades away. David Warren
© Ottawa Citizen
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