Meltdown hits people in the 'best country to live in' Iceland

- Until recently, 25-year-old Audur Elin Sigurdardottir was living a modest Icelandic dream -- renting an apartment and two cars with her boyfriend on their one full-time and one part-time salary.

"Now I live at home with my Mom, I work three jobs and it's still not enough to pay my debts," said Sigurdardottir as she digested the island's daily onslaught of bad news over a calming glass of wine with a friend.

Iceland's financial meltdown isn't just a banking calamity -- it is also destroying dreams and turning lives upside down across this once affluent nation.

Just last year, Iceland won the U.N.'s "best country to live in" poll, with its residents rated the most contented in the world. The stock market was booming, cash-rich companies helmed by youthful CEOs were on an acquisition spree across Europe, and Icelanders enjoyed one of the globe's highest per capita incomes.

No more. The global financial crisis has washed up hard on the shores of this volcanic island of 320,000 people, its decision to swap cod fishing for a complex debt laden economy exacting a heavy toll.

For ordinary Icelanders, the biggest problem is that they were encouraged to upgrade to a more luxurious lifestyle by buying houses and cars that were financed by 100 percent loans based on a spread of foreign currencies.

The loans, called "Myntkörfulán" or "breadbasket" loans, were immensely popular because of their low interest rates compared to loans based on the then strong krona. But thousands of people are now defaulting as the Icelandic currency plummets.

Classified advertisements are mushrooming in the local newspapers with car owners offering cash of up to 770,000 krona (US$6,300) to anyone willing to take their car off their hands and assume responsibility for their "bread basket" loan.

Kolbeinn Blandon, who owns the Hofdahollin car dealership on the outskirts of the capital, says foreign loans "are killing us."

Blandon usually sells up to 150 cars a month. This month he's sold just eight so far and his staff chat idly as they take a long smoking break without a customer in sight.

"People are buying much cheaper cars, the expensive lot is just standing collecting dust, it is not selling at all," he says.

Blandon is now planning to export the cars back to Europe, where the price he can get from the strong euro will hopefully outweigh transportation costs.

When the country deregulated its financial industry in the mid-1990s and created the Icelandic stock exchange, the subsequent boom in paper wealth funded a generation of entrepreneurs who set out to conquer swaths of the European economy.

Back home, Icelanders eagerly took their share of the boom, with the average Icelandic family seeing its wealth surge by 45 percent in just five years.

Now, seemingly overnight, most of that wealth has evaporated.

"I am really afraid of what's going to happen," said Alexandra Sif Herleifsdottir, a 19-year-old bar worker. "We are afraid we might lose our jobs."

Her friend Sigurdardottir said she has cut back spending, with a drink after work one of her last remaining luxuries.

Icelanders are also increasingly angry, looking for somewhere to point blame for the country's spectacular fall.

Olafur Sigurdsson, 21, a school worker, is furious at both the banking executives who have retreated behind closed doors and the government, which has been making daily -- but incoherent -- TV appearances to explain the crisis.

"These people are going on TV and we can see in their faces that they are powerless," he said glumly.

In a jibe at the government, Elisabet Jokulsdottir carried a sign at a protest rally outside the central bank offices in Reykjavik: "Stay calm while we rob you."

"My son lost all his savings just days after they told us it would be fine," she said. "Somebody has to take responsibility."

Along with despair and anger, many Icelanders are displaying stoic resolve typical of the country.

"We can learn from what they did wrong," said Alvin Zogu, a 21-year-old print machinist, of the bankers who caused the financial collapse. "We can make better decisions."

That optimism is likely misplaced in the near term: it will take the Icelandic economy years, if not decades, to rise from the ashes.

Soaring inflation and crippling interest rates have been compounded by a banking system collapse of epic proportions that Prime Minister Geir H. Haarde has acknowledged will take the tiny Nordic nation years to recover from.

In the past week, the government has used emergency powers to take control of the country's three major banks, trading on the stock exchange has been suspended and attempts to put a floor under the free-falling krona have failed dismally.

Supplies of foreign currencies have dried up and, as Britain invoked anti-terrorism laws to freeze assets of Icelandic banks, the nation has never felt more isolated.

"There's a feeling in the air I've never felt before," said 21-year-old Olaf Helgason. "It's almost like 9/11 again. It feels like we are going through something that only happens once in a lifetime." source>>>

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