Icelanders face frugal holiday in economic chill

A man shopped at a flea market in Reykjavik, Iceland, in November. At his traditional food stand in the harborside flea market, one vendor said he is seeing a marked rise in sales of horsemeat. (Brynjar Gunnarsson/ Associated Press)

REYKJAVIK, Iceland - Here are a few things selling briskly in Iceland's capital as Christmas approaches: horsemeat, secondhand clothing, and used DVDs of "The Sound of Music."

Thrift is the new mantra in Iceland, a volcanic island nation just below the Arctic Circle now trapped in an economic deep freeze, with rising unemployment, soaring prices, and a paralyzed banking system.

"Before, you didn't think about what you were buying, but now we've been woken up," said Holmfridur Kristinsdottir, who sells such delicacies as dried fish and pungent chunks of fermented shark at Reykjavik's flea market. "When we buy beer now, we buy Icelandic beer; it's cheaper."

This is a tough Christmas in Iceland, a country that cherishes its Yuletide traditions. Multicolored lights twinkle on houses and trees across Reykjavik during the 19 hours a day of December darkness. Soon children will place shoes on their windowsills for the 13 Yule Lads, Iceland's equivalent of Santa Claus, who leave presents for the good and potatoes for the naughty.

But amid the comforting rituals, Iceland's 320,000 people are facing a wintry economic blast after a decade of boom that turned their island into a Nordic financial powerhouse with one of the world's highest per-capita ownership levels of high-end Range Rover sport utility vehicles.

Now, austerity is in the air.

At his traditional food stand in the harborside flea market, Siggi Gardarsson said he is seeing a marked rise in sales of horsemeat, a traditional staple that's half the price of comparable cuts of beef.

Maria Oskarsdottir is doing a brisk trade in her hand-knitted hats and mittens, while Olaf Olafsson said his military surplus clothing is having its best month ever.

"Some of the old hands say it happens in recessions. Sales go up," Olafsson said. "We offer similar to the high street stores, but half the price."

As well as cutting back on spending, Icelanders are taking refuge in simple pleasures. A DVD stand in the market reports brisk sales of "The Sound of Music."

Runar Birgisson said sales at his bookstall have doubled since the country's main commercial banks collapsed in early October. "In Iceland, books are not a luxury item," he said. "They are very important for your soul. For six months a year it is very dark and cold. It's very comforting to read a good book."

Iceland was settled by Vikings more than 1,000 years ago, and its people are proud of their endurance through plague, famine, and volcanic eruptions that wiped out as much as half the population at a stroke.

Although Icelanders founded the world's first parliament, the Althingi, in the 10th century, their country fell under Danish rule for centuries and became fully independent in 1944.

Iceland used to be so dependent on a single industry - cod fishing - that three times between 1958 and 1976 it risked war with the British Navy over fishing rights. In the '80s annual inflation ran up to 85 percent. History may have predisposed Icelanders to make the best of the good times while they lasted.

Financial deregulation and a 1990s stock market boom produced a decade of debt-fed economic expansion that saw Icelandic entrepreneurs snap up businesses around the world.

Many Icelanders joined in the lending-and-spending spree, taking easily available loans to buy houses, holidays, and expensive cars. Now Iceland's currency, the krona, has collapsed, prices of imports have soared, many businesses are approaching bankruptcy, hundreds of people are being laid off each week, and the government is seeking $10 billion in outside aid.

"People are sobering up," said Thorbjorn Broddason, a sociologist at the University of Iceland. "In recent years money has been the king in Iceland. Successful people were those who were making lots of money. You walked around and wondered: 'Why don't I have a jet-black shiny SUV? What's wrong with me?' I think this is going to change drastically. People are going to value loyalty and moderation."