Bruggsmidjan, a microbrewery in the Icelandic town of Arskogssandur, is thriving. Despite the not-very-fortuitous timing of its opening — a couple of years before the implosion of the Icelandic economy in 2008 — demand for its Kaldi beer is soaring. Over summer, the brewery expanded its operations by two-thirds, now producing over half a million litres a year.
Kristinn Vilsson, chief brewer at Bruggsmidjan, is optimistic about the future, as well as that of his economy: “On the news people don't talk so much about these things,” he said of the crisis that hit his country three years ago. “I think people are looking more forward rather than backwards.”
It is an optimism echoed by Iceland's fishing industry — which accounts for around 12 per cent of its GDP. “Demand for fish products has been high in our export markets and business has thus been booming,” says Sveinn Hjortur Hjartson, economist at the Federation of Icelandic Fishing Vessel Owners.
SAVED BY KRONA
It is ironic that just as gloom about the euro zone is deepening — even German Chancellor Angela Merkel has admitted Greece may have to leave the currency — the country whose crash heralded the crisis has put the very worst behind it.
Of course, times are still tough: unemployment is high, the depreciation of the krona has left life — and foreign currency loans — a deal more expensive for many Icelanders, and taxes are up as part of wider austerity measures. However, a bond auction in June was twice oversubscribed and the economy could grow as much as 2.5 per cent this year, after contracting 6.9 per cent in 2009. Last year GDP fell 3.5 per cent in Iceland.
Government debt is expected to fall to around 60 per cent of GDP by 2014. And most importantly, as of August, Iceland is no longer on the International Monetary Fund's $2.25-billion assistance programme.
There is, of course, endless speculation as to why and how. Not bailing out Kaupthing, Landsbanki and Glitnir — the banks whose foreign lending excesses were at the root of Iceland's woes — may have been inevitable (their liabilities were nearly 10 times GDP so it was never a real option), but is certainly seen as a significant factor, as was a nuanced austerity programme that kept many welfare measures in place.
However, in a recent television interview, the country's President Olafur Grimsson was in no doubt of his top reason: having the krona. The krona depreciated heavily, nearly halving in value, giving the country's fishing, aluminium and tourism industries a big boost. (Capital controls limited the scale of the devaluation.) In the years running up to 2008, the huge inflow of foreign capital had left the krona highly overvalued, which had a dampening effect on these industries.
WARY OF EU MEMBERSHIP
Unsurprisingly this is feeding into public sentiment: Iceland is set to join the European Union, having applied for membership one year into the crisis, but the euro zone's ongoing troubles have raised questions about how to take that future forward.
Already existing fears about EU membership — Iceland would vastly increase Europe's fishery reserves so many ask whether it would give away more than it would gain — are being compounded, and public support for euro zone membership has waned. Even the country's finance minister, Steigrimur Sigfusson, has expressed his own reservations about the stability that euro zone membership would bring.
A similar debate is happening over in Poland, the only member of the EU to avoid recession in 2009. It may be a country of Europhiles, as an economist recently described it, and EU funding of domestic infrastructure programmes has certainly helped support the economy through the crisis, but euro zone membership is no longer the coveted thing it once was.
For the depreciation of the zloty helped Poland's sizable small and medium business sector keep exporting to the euro zone, and particularly Germany, somewhat counteracting the negative impact that the crisis was having on the automobile and other sectors.
Moreover, domestic demand for local products was boosted by a fall in imports, with local businesses rising to the challenge, argues economist Leon Podkaminer. The economy is estimated to have grown as much as 4 per cent this year, and is predicted to grow by around 2 per cent next year, well above much of the rest of Europe.
In Poland, attitudes are further complicated by a sense of powerlessness: the reality of Europe and the euro zone are far from what Poland had hoped to sign up for. Its presidency of the European Commission this year hasn't delivered it much traction in the euro debate: eyebrows were apparently raised when its finance minister attended a recent euro zone summit.
The Eastern Partnership, a project spearheaded by Poland and Sweden to help former Soviet states adjust to EU criteria, has received little support from some core members of the euro zone. (French President Nicholas Sarkozy was criticised for failing to attend its most recent meeting). Talk of a two-speed Europe by leaders including Sarkozy has accentuated the sense of division.
Recent polls in Poland have shown support for euro accession at between 18 per cent and 30 per cent, while politicians and central bankers remain sceptical.
The Prime Minister's prediction three years ago that Poland could be a member of the euro zone as early as 2012 seems a world away. Marek Chrzanowski of the Warsaw School of Economics predicts that the very earliest it could happen — if at all — would be around 2020-2022.
Hungary may have fared far worse than Poland — this week it confirmed that it has started talks with the IMF and EU on a potential assistance programme — but here too leaders have expressed their doubts about joining, even if at this stage it is just a theoretical question, given that the crisis has pushed the country further away from meeting the stringent joining criteria.
Last month, Czech Prime Minister Petr Necas called for a referendum on whether to join the euro zone, arguing that the conditions under which it had agreed to move ahead with adopting euro back in 2003 were dramatically different. Latvia, which has committed to joining the euro zone in 2014, is pretty much the only member to have reiterated its plans to meet that deadline — though, again, many economists remain sceptical about whether it will be able to meet the criteria within that timeframe.
THREE CAMPS
Europe was once divided into three camps: euro zone members, those such as Britain and Denmark that had no intention of joining the single currency, and a third category for which euro zone membership was an unquestionably good thing. Particularly in eastern and central Europe, joining the euro represented something far more; weaning them out of Russia's sphere of influence and into the West. But as Iceland showed only too clearly: having or not having the euro doesn't make a nation immune to lax regulatory practices, or an over-buoyant banking sector, but it can make a difference to the speed and ease of recovery.
One of the consequences of the crisis is a more nuanced debate in this third group, of what benefits will ensue from membership. It can only be a good thing.