Iceland feels chill of Christmas recession

Iceland is paying the price for its role in adding to the world credit crunch by being forced into an austerity Christmas.

Among the things now selling briskly in the capital Reykjavik are horse meat, second-hand clothing and used DVDs of “The Sound of Music.”

Thrift is the new mantra in a country trapped in economic deep freeze with rising unemployment, soaring prices and a paralysed banking system.

“Before, you didn’t think about what you were buying, but now we’ve been woken up,” said Holmfridur Kristinsdottir, who sells such delicacies as dried fish and pungent chunks of fermented shark at Reykjavik’s flea market. “When we buy beer now, we buy Icelandic beer – it’s cheaper.”

Iceland cherishes its Yuletide traditions. Multicoloured lights twinkle on houses and trees across Reykjavik during the 19 hours a day of December darkness. Soon children will place shoes on their window sills for the 13 Yule Lads, Iceland’s equivalent of Santa Claus, who leave presents for the good and potatoes for the naughty.

But amid the comforting rituals, Iceland’s 320,000 people are facing a wintry economic blast after a decade of boom that turned their island a Nordic financial powerhouse with one of the world’s highest per-capita ownership levels of Range Rovers.

At his traditional food stand in the harbour-side flea market, Siggi Gardarsson says he is seeing a marked rise in sales of horse meat – a traditional staple that’s half the price of comparable cuts of beef.

Maria Oskarsdottir is doing a brisk trade in her hand-knitted hats and mittens, while Olaf Olafsson says his military surplus clothing is having its best month ever.

“Some of the old hands say it happens in recessions. Sales go up,” Olafsson said. “We offer similar to the high street stores, but half the price.”

As well as cutting back on spending, Icelanders are taking refuge in simple pleasures. A DVD stand in the market reports brisk sales of “The Sound of Music,” an uplifting family favourite.

Runar Birgisson said sales at his bookstall have doubled since the country’s main commercial banks collapsed in early October. “In Iceland, books are not a luxury item,” he said. “They are very important for your soul. For six months a year it is very dark and cold. It’s very comforting to read a good book.”

Iceland was settled by Vikings more than 1,000 years ago, and its people are proud of their endurance through plague, famine and volcanic eruptions that wiped out as much as half the population at a stroke.

History may have predisposed Icelanders to make the best of the good times while they lasted.

Financial deregulation and a 1990s stock market boom produced a decade of debt-fed economic expansion that saw Icelandic entrepreneurs snap up businesses around the world.

Many Icelanders joined in the lending-and-spending spree, taking easily available loans to buy houses, holidays and expensive cars.