Can Iceland Be Saved?

The plan to get an entire country out of debtors’ prison.

By Rob Cox
Monday, June 29, 2009 - 3:55pm

At one end of Laugavegur, Reykjavik’s main shopping (and partying) street, Icelanders jostle in the aisles of a Bonus discount grocery to fill their baskets with ham, dried codfish, and other staples. A mile or so up the road, on the ground floor of a shiny new office tower that also houses the stock market, sits an Apple (AAPL) store that is perhaps the only one of its kind: Save a salesman, it is completely empty.

This neatly illustrates the state of play in Iceland eight months after it essentially went bust. No country embraced the excesses of the credit bubble as zealously as this north Atlantic island nation of about 310,000 people. As a result, it’s hard to find a place that’s suffering the deprivations of the crunch to the same degree. It’s not just that iPods are off the shopping list in favor of processed pork. The nation is massively indebted, consumer spending is in free fall, its big banks have been taken over by the state, and capital controls restrict the flow of money outside the country.