While Iceland is certainly not the only country now hit by recession the effects here have been particularly dramatic and the world press has reported the situation in hyperbolic terms: State bankruptcy, mass unemployment, total collapse! The headlines conjure up images of breadlines, crumbling factories and empty shops, a wandering mass of the homeless, gradually sinking into barbarity. This is all the more dramatic since Iceland has, for the past two decades or so, consistently been rated one of the richest places in the world – on a per-capita basis – and has also scored high for the absence of corruption and for the general happiness and prosperity of the population. In light of this autumn’s collapse it is unlikely that Iceland will again top any lists for the “world’s most desirable places to live” – not any time soon, at least – but for the most part and for most people, life goes on much as it has. The shops are still open, we still go to the theatre in record numbers, museums and galleries put on new exhibitions and the fish in Reykjavík’s famous restaurants is as fresh and elegantly prepared as ever.

Roots of the Crisis
The current crisis is very much a financial one: A crisis of credit and finance, risk-addicted bankers and over-extended companies.  In the booming decade now behind us, Iceland certainly saw its share of the latter two. Icelandic businessmen who, since the end of the Viking age at least, had been limited to the small home market, now flew across the ocean to buy up companies, supermarket chains and swathes of property in the United Kingdom, Denmark, Finland and the Baltic states – wherever they could find anything for sale. Their aggressive entrepreneurial style prompted inevitable comparisons with the Vikings of old. A new word came into use to describe their triumphant expansion: “útrás” or the outward surge. Credit was easy to come by in the world financial market and the recently privatised Icelandic banks and their corporate clients milked it for every penny with highly leveraged takeovers and ever riskier ventures. So long as new loans could be taken to pay up the old ones, they could continue to grow and prosper. Meanwhile, the government pursued a policy that ensured an abnormally high exchange rate for the currency – the króna – which attracted investments and gave those investing abroad all the more money to play with but at the same time chocked the export industries at home.

Not only did the authorites thus pursue a monetary policy that fulelled the financial bubble, it also failed to heed warnings that that banks had grown too large for our tiny economy and failed to keep checks on the risks being taken. Much of the public's anger is now directed at the politicians who were in charge and who still cling to power despite scathing polls showing their rapidly diminishing support.

The credit crunch put an end to the party and suddenly, at the beginning of October, the whole house of cards came crashing down. The banks had grown to ten times the size of the Icelandic economy and when they could no longer refinance themselves in the international credit markets, they were taken over by the state in an effort to prevent the total collapse of the banking system. The Króna collapsed, losing more than half its value before currency restrictions were imposed. Companies began to go bankrupt and even ordinary people started to feel the crunch as inflation swelled their debts while the value of their property slumped. With double-digit inflation and a stagnant market, we see the value of our wages and our property drop while the price of everything, including food, rockets up – now 58% higher than the EU average. The government has turned to the International Monetary Fund to arrange loans to shore up the currency and get international trade going again but it may be a long time before we can expect any kind of stability in the economy again.

The prospect everyone fears is unemployment which has hardly registered in Iceland since the 1960s but is now up to 5.5%. While this may not seem so high compared to the chronic unemployment in most European countries, the consequences could be dire for a nation of only 300,000 where everyone is needed to keep the wheels turning and the burden of maintaining the welfare system already has us at one of the highest rates of taxation known anywhere  in the world. If this was only a local crisis, we could expect to see tens of thousands going to work abroad – almost a third of respondent in a recent poll said they were considering immigration – but with unemployment rising everywhere it seems most Icelanders will just have to ride it out at home.

No one knows how this will end but even the most optimistic politicians and economists predict two years of depression, as deep as ay we have known in many decades.

Cultural Production
The years of prosperity saw some trickling down to the cultural sector as banks and companies provided grants and sponsorships deals for public institutions and even individuals, from the symphony orchestra down to individual artists. There are no reliable estimates of the total amount thus channelled into cultural production but it certainly did make an impact, allowing for bigger projects and a higher profile as cultural institutions and art projects were piggy-backed onto corporate advertising budgets and the presence of super-rich sponsors at openings was dutifully reported in the gossip columns. Few of those who grew rich, however, developed much of a taste for contemporary art so while the market certainly did pick up during the years of prosperity, it had far less of an impact on artist’s incomes than one might have expected and any gains there will now likely disappear. The only positive thing to be said here is that those artists with customers abroad will now get more Króna for the Euros and Dollars they earn, thanks to the devaluation.

For cultural institutions, corporate sponsorships came at a price as they eased the pressure on government agencies to sustain and increase permanent public funding for arts and culture. This may now leave many worse off than before as the sponsorships dry up and the public funding – already devalued by inflation – is set to be cut even further. The damage this could do to the already fragile and understaffed infrastructure of Iceland’s cultural life could take many years to repair.

It is too early to say what impact this will have on the content and production of Icelandic art. Most of the artists working today have grown up without experiencing anything like the economic crisis we now face and political art in recent years has focused largely on environmental issues. Perhaps we will now see more direct approaches as the recession starts to bite.

Perhaps a hint of what we might see comes from the recent publication of The CEO of Today, a series of postcards celebrating, tounge-in-cheek, the leaders of the Icelandic economic miracle. Produced by artist Spessi, author Auður Jónsdóttir, musician Björn Blöndal and others, the images record the resilience of the Icelandic CEO despite the current setbacks. The humour is dark with a nasty edge, perhaps just what we need to get us through.