No man is an island

Iceland lies in the middle of the northern Atlantic, in one of the most remote parts of the Earth. Its population – a little over 300,000 – is descended mostly from Norwegians, who settled there in the 9th century, and is so homogenous and (most literally) insular that it is the subject of a national project to map everyone’s genome. According to the UN’s Human Development Index, Iceland is the most developed society in the world, in terms of longevity, literacy, quality of life and per capita income (about $64,000 in 2006). Among its many firsts, it just added another: In recent days, it became the first country to buckle under the weight of the global credit crisis. The government was forced to nationalize the country’s three biggest banks, the national currency (the krone) is no longer traded and on Thursday the stock exchange was shut down. Iceland is the first country to be in danger of bankruptcy because of this crisis. Like some Third World failure, it is looking to the International Monetary Fund for help. A founding member of NATO, it has asked Russia for a loan of 4 billion euros to try and stay afloat. Given that the gross national product of Iceland is about $17 billion and that its banks owe some $80 billion to foreign depositors, we can understand the magnitude of the problem: A large banking sector, with unregulated expansion into foreign countries, is dragging the whole country toward economic ruin and also leading to tension outside its borders. Britain has frozen Icelandic assets on its soil in an effort to protect the deposits of some 300,000 Britons in Icelandic banks. The result is that things are now even more difficult for Iceland, whose government has to negotiate with other governments but is also finding it more difficult to safeguard the deposits of its own citizens, with the political cost that this will have. Looking at these factors, it would appear that Iceland’s only way out would be to find a way to peg its currency to the euro, despite the fact that the country is not even a member of the EU, let alone of the eurozone. Iceland is at the center of the global storm because its financial sector expanded rapaciously way beyond its borders and beyond the means of the country, because its currency did not manage to hold up against external pressure and because it is not part of a greater whole that could offer it some protection. We can draw many conclusions from the above factors. But perhaps the most urgent one is that the crisis that is knocking down markets and world theories can strike like lightning in the most unexpected places. For example, who would expect street lighting and garbage collection in Britain to be affected by Iceland’s woes? Yet, 108 British municipal councils have invested some 1.2 billion euros in Icelandic banks and the future of those accounts is very murky. With globalization and the «liberation» of markets, the whole world is tangled up in a knot. The only hope for the restoration of some order and balance lies in state intervention. It is too early to say whether we are seeing the end of unregulated capitalism or the establishment of a new type of «socialism.» But at this moment, states are like rocks in a sea of panicked markets and bankrupt companies and ideas. Whatever new economic system results from this will have to combine state control with the functionality of the private sector, so that we can avoid the extremes of each. Until order is restored to the markets and until we learn what the consequences of this crisis will be for us, whether we be bankers or farmers, we watch Iceland’s troubles and wonder whether we will face the same. As John Donne wrote: «No man is an island… any man’s death diminishes me, because I am involved in mankind; and therefore never send to know for whom the bell tolls; it tolls for thee.»