Iceland's tourism boom fuels recovery, lays bare locals' plight

Mon Jun 13, 2016 9:59am EDT
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By Gwladys Fouche and Ragnhildur Sigurdardottir

GRINDAVIK, Iceland (Reuters) - On a recent weeknight Iceland's top tourist attraction, the Blue Lagoon geothermal spa, is packed with visitors wearing mud masks and quaffing local beer, contributing to a tourism surge that is helping to fix an economy wrecked by the 2008 financial crisis.

Many Icelanders are not having as much fun.

While unemployment has fallen to pre-crisis levels, gross national income per capita is around a quarter less than in 2007, about one-tenth of the population has fallen into serious loan default and thousands of homes have been repossessed.

They have little faith in the authorities fully restoring living standards and the resentment is fuelling the rise of the anti-establishment Pirate Party, which is leading in polls ahead of elections in October.

The mistrust runs deep. Iceland suffered one of the first big financial implosions of the European economic meltdown after the collapse of its banking system, becoming the first western European country to get an International Monetary Fund (IMF) bailout since 1976.

It needed the $2.1 billion IMF loan, and another $2.5 billion from its Scandinavian neighbors, to protect domestic deposits and keep its krona currency, which has collapsed 70 percent against the euro since 2007, from crashing further.

The government sharply reduced spending and raised interest rates to as much as 18 percent to control inflation that climbed to a record-high 18.6 percent in January 2009.

The currency collapse, though, helped restore competitiveness and, along with a big marketing push to promote Iceland as a destination, boosted tourism.   Continued...

Visitors enjoy a drink in the Blue Lagoon geothermal spa in Grindavik, Iceland, May 25, 2016. REUTERS/Gwladys Fouche