The Icemen Cometh

Fellow Europeans can testify to that. Loaded with cash that cannot be fully absorbed at home, Icelandic bankers and investors have been pushing abroad. The giant Baugur holding company, born out of a single discount store in 1989, has snapped up some of Britain's premier retailers, including the famous Hamleys toyshop. Iceland's largest bank, Kaupthing, has doubled in size every year since 1996 and now draws more than 60 percent of its income from abroad. Recently, it took aim at London's venerable investment bank Singer & Friedlander.

Iceland's emergence has brought some very contemporary anxieties, of course. A housing boom pushed up prices more than 25 percent last year. Low unemployment (3 percent) and labor shortages have occasioned a spasm of immigration. Walk into any fish-processing plant or construction site and the chatter may be as much in Polish as Icelandic. Foreigners now make up 3 percent of the population--not much, but a big change for a once homogeneous society. The new affluence is pro-ducing wider income-gap disparities, but so far the world's oldest democracy hasn't lost its egalitarian character. "It's like the American Dream," says Lilja Mosesdottir of the Bifrost School of Business. "Everyone still believes that they can make it."

Small economies are famously susceptible to economic buffeting, and economists see a squall ahead. "The economy is overheating and there's very little slack left," says Hannes Suppanz, an economist with the Organization for Economic Cooperation and Development in Paris. On the other hand, the OECD pays tribute to Iceland's "un-expected degree of economic dynamism." Don't expect a meltdown. But perhaps it's time for Iceland to cool down a bit.

© 2005