Letter from Iceland

REYKJAVIK, Iceland — This entire country may have roughly the same size population as Buffalo, N.Y., but at a bit more than 300,000 people, Iceland punches above its weight in the world arena.

Iceland's medieval sagas are among the most important works of world literature, and modern Icelanders have the distinction of publishing more books per capita than any other country.

Its volcanoes are the most annoying in Europe, seemingly ever-ready to send ash up into the world’s most heavily traveled international airspace. But for Icelanders their volcanoes are a source of pride and a tourist attraction.

Iceland was the site of the chess match of the 20th century between Bobby Fischer and Boris Spassky in 1972 (Fischer won), and the site of the even more famous meeting between Michail Gorbachev and Ronald Reagan in 1988 — the summit that saw the beginning of the end for the Cold War.

Iceland also has the dubious distinction of being the worst hit of all when the world’s financial bubble burst in 2008, with a cascade of failing banks provoking the cruel joke: What’s the capital of Iceland? About $3.25.

The great Icelandic boom and bust, like that of the United States, came from abandoning regulation in the great financial greed-fest. But the highs went higher here, and the low, lower.

Iceland now has about 8 percent unemployment, but since it came from a baseline of only 1 or 2 percent, that means there is virtually no unemployment. So, if anything, Icelanders are hurting more than Americans in the Great Recession.

As America first faked left and then swung to the right in response to the recession, Iceland has moved left. The Social Democrats are now in coalition with the Left Greens, who have never been in power before.

“But everything is an argument,” said Karl Blondal, deputy editor of Reykjavic’s Morgunbladid newspaper. Here, because the country is so small, “there are only two degrees of separation,” Blondal said.

It is said that when two strangers meet in Iceland, it takes only 43 seconds for them to come up with someone they both know. And that makes politics personal.

When a new idea comes up, the first thing everyone wants to know is, whose idea is it? If they don’t like the person who thought of it, they won’t accept the idea.

“It’s not so easy to find anyone objective here, we are all too much involved,” said Helga Guorun Johnson, a business woman and former journalist. “Most of us are still very angry and even hateful, and we are busy just surviving.”

As in America, there is resentment that none of the bankers who got the country into this financial mess are behind bars.

In Greater Reykjavik, where nearly 65 percent of the population lives, a new party called “The Best Party” came from nowhere on the wings of discontent. A popular comedian with no political experience, named Jon Gnarr, is now mayor.

The establishment is terrified lest the Best Party go national. One of its slogans was: “We will renege on every promise we make,” Blondal told me, revealing the depths of post-crash cynicism. 

Iceland is said to have the world’s oldest parliament, dating back to the Middle Ages. But true independence from Denmark came only after the Danes were over-run by the Nazis in April of 1940. In May, the British sent troops to guard against a German takeover — not exactly invited but welcomed.

In 1941, before Pearl Harbor when America was officially neutral, the United States took over the defense of Iceland from the over-stretched British, and sent 47,000 troops, about one-quarter of the entire population of Iceland at the time.

Before World War II, Iceland was a poor, almost pre-modern country, but the Americans dragged it into the 20th century.

Iceland formed a special bond with the Americans, and it was during the virtual American occupation that Iceland declared itself a republic, freeing itself from the Danish throne in 1944. The United States was the first to recognize it. And when the Nazis were beaten, the Cold War renewed the Icelandic-American security arrangement.

But the strategic partnership between two sovereign nations turned out to be not as important to the Americans as Iceland had hoped. In the time of George W. Bush, with the Cold War over and new American wars to be fought in far-away places, the Americans ended their presence here, leading to a sense of abandonment upon the part of Icelanders.

There is a point on this island on which you can stand one foot on the American tectonic plate, with the other on the European plate. Icelanders like to say they are really part of both.

Iceland was a founding member of NATO, even though it has no army, and some here hope to become part of the European Union one day. But that, like everything else, is controversial here, and the lure of joining the euro zone has receded.

The example of the Irish, the Greeks, and now the Portuguese — euro zone members who could not devalue their currency when it was needed — is too vivid a negative example for Iceland to follow anytime soon.

So, for the time being, Iceland will lick its wounds and live with a lower standard of living, and go back to the basics — such as fishing, its biggest export — and put behind it the dream that everyone and anyone could become a millionaire through financial manipulations.

The boom years all seem like a strange dream now that reality has barged its way back to this island nation.