|The IMF has declared that Iceland's economy is recovering well [GALLO/GETTY]
Reykjavid, Iceland - Three years ago, thousands of Icelanders were standing outside Iceland's parliament building chanting "incompetent government" in an attempt to bring down the conservative government that had been seen as responsible for the collapse of the country's banking system.
In 2008, all three major commercial banks collapsed because they could not refinance their short-term debt. It was the largest banking collapse ever in relation to the size of the economy.
The protestors won, the government resigned and a left-wing government consisting of the Left-Green Movement and the Social Democratic Alliance took over. The new government pledged to look after the welfare of the average Icelander, but opinions differ whether it has managed to do that.
After the crash, the Icelandic krona devalued significantly, which meant that the price of anything which had to be imported or was dependent on foreign currency increased considerably. Food, fuel and consumer goods were particularly affected, and are still much more expensive than they were prior to the crash.
For instance, all of the organisations that provide food assistance to people in need have reported a substantial increase in clients.
People lost their jobs, or took wage cuts, or were banned from working overtime or worked on the black market. Those in the building sector were particularly affected, as the house market collapsed. However, the unemployment level has improved somewhat, and now only 6.1 per cent of Icelanders are registered unemployed.
Consumer loan repayments also rose significantly. The people worst off are those who bought real estate or cars in the year or two preceding the bank crash, when house prices were at their peak and - at least for houses - the banks were offering 100 per cent loans.
In Iceland, a nation of 300,000, about 75 per cent of people own the property they live in. Before the crash, would-be house buyers were frequently advised to take out mortgages in foreign currency, or a blend of Icelandic and foreign currency. After the crash, the exchange rate almost doubled - which meant that it cost more to repay loans - and the price of real estate fell. New homeowners were left with worthless real estate for which they had to repay loans that exceeded the value of the property.
But people with loans in Icelandic currency also suffered. One woman, Kristin Hafsteinsdottir, bought her small flat in 2007 but increased mortgage payments became too much for her, so she went to work overseas for a year.
To keep her job open, she had to return within a year, which she did - and then paid off her mortgage by taking money out of her savings from her work abroad and her pension fund.
Last year she was told the loan on her flat had returned to 110 per cent of the market value. She had become one of the people eligible for one of the new schemes to help homeowners, the so-called 110 per cent measure. Here, the financial institution or bank writes off a portion of the loan if mortgage payments have been kept up to date.
She is still in financial difficulties, though. "Now the price indexation is crippling me again. The loan is related to the consumer price index, and every time that goes up so does my loan and the price increase compensation," she said.
One option for people in difficulty is the Debtors' Ombudsman. "People come here for various reasons and we try to tailour the solution to the individual. Most have applied for debt mitigation, but there are also a sizeable number who want to solve their problems in a less drastic way than debt mitigation," says Svanborg Sigmarsdottir, information officer for the agency.
"Most lenders also offer a temporary solution whereby only interest on the loan is paid and the payment of monthly instalments is postponed. It is also possible to apply for postponement of both instalments and interest. When the monthly payments begin again, they will be higher than before the freezing, as interest is calculated from a higher amount than before," she said.
Wealth and happiness
The Association of Icelandic Homes (AIH) was set up a few days before the January protests began, with the mission of looking after the interests of property owners. Their demands include the abolition of indexation and the rectification of loans.
According to the national tax authority, 40 per cent of Icelanders have negative equity - they owe more than they own. This corresponds to 60,000 families. Some of these people have given up on life in Iceland and moved overseas. Norway is especially popular, as abundant work is available in the oil industry.
But some people return, for one reason or another. Sturla Jonsson is one of these.
Prior to December 2007, Jonsson ran a thriving business. Then things started to slow down, and he got no contracts between December and the following May. The work he did get was not enough to pay the oil expenses for his vehicles, let alone the mortgage repayments on his house.
In June 2009 Jonsson went to Norway to work, first getting work in the trucking business and then with tiling. He managed to earn enough to keep up with the repayments, but finally returned to Iceland as his back was causing problems.
He then discovered that his mortgage repayments had been recalculated and he had to pay back more than he could. "My house was sold at auction by the District Commissioner," he explained. He will have to vacate the premises by early March. "But I've studied the law and I'll fight it," he added.
The bank collapse did not have purely negative repercussions, however. For instance, children are happier. Icelanders have always worked extremely long hours, often doing two or more jobs. With overtime cut back after the crash, they have more time to spend with family and friends.
The crisis also made people suddenly wake up and take stock of their situation. Is it really necessary to have two new, fuel-hungry 4-WD cars for a family of four? Perhaps not. Today, signs of extravagances of pre-crash consumerism are said to be "very 2007".
And yet wages in banks are increasing. There has been an upsurge in the sale of luxury cars. Icelanders are once again flocking to overseas cities on shopping trips - this time Boston is popular.
After its final review of the Icelandic economy, the IMF declared that Iceland's economy was recovering well. Clearly at least some Icelanders are benefitting from the new situation.
A version of this article was first published on Inter Press Service.