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Financial crisis in Iceland


The Icelandic Red Cross goes into emergency response mode as an entire country becomes a casualty of the global financial crisis.


Unemployment does not sit easily with people in Iceland, one of the world’s richest countries, which has been hit hard by the global financial crisis.

“We are preparing to serve new groups of beneficiaries who have never sought help from the Red Cross before,” says Helga G. Halldorsdottir, director of Icelandic Red Cross domestic programmes. “We are also looking towards recruiting new volunteers — to respond to the arising need but also as a way for people to continue contributing to society although they find themselves out of work.”

After years of full employment, growth and wealth, unemployment  rates in the North Atlantic country ofjust 320,000 people soared 500 per cent in four months. One in ten is expected to be jobless by the end of 2009. Companies reduced working hours and many employees suffered severe salary cuts.

The value of the Icelandic krona fell drastically. Inflation stood at an unheard-of 20 per cent at the start of 2009. This was expected to be disastrous for many people with foreign currency mortgages on their homes.

Iceland, a nation that was one of the most affluent in the world, reeled from the financial crisis in early 2009, sparking demonstrations. It was a nation in crisis.

New Red Cross role

The situation triggered emergency response mode in the Icelandic Red Cross. In October 2008, the Red Cross scaled up its psychosocial programmes, embarking on providing large-scale psychological support for people suffering from the economic crash.

“The experience of our Nordic sister National Societies that suffered sharp financial crisis in the early 1990s shows that it is important to attend to the psychological needs of the people as soon as possible after the shock,” says Kristjan Sturluson, the secretary general of the Icelandic Red Cross, who holds a psychology degree. “The Icelandic Red Cross provides psychological support in the aftermath of natural disasters, and we feel there is just as much need for it now although this is a man-made crisis.”

Sturluson points out that most people go through a very similar emotional pattern when affected by a shock. But unlike sudden-onset disasters, the crisis in Iceland unfolded over months, leaving people confused and angry, desperately trying to find their way in a society turned upside down.

“We notice that people have now come out of their disbelief, and they are outraged. Every ordinary home in Iceland has been affected by the crisis in some way, and many people are facing difficulties in making ends meet,” says Sturluson.

In the first six months of 2009, the Icelandic Red Cross plans to run a trauma centre open to the public, where people can gather, share lunch, attend workshops and seek individual support from members of the Red Cross psychosocial team. The need is evident, reflected in a 40 per cent increase of phone calls to the Red Cross 24-hour helpline after October — most of which were linked to people’s changed circumstances due to the ongoing crisis.

“People find comfort in being able to call a service where there is full confidentiality,” explains Sturluson. “We feel that this is also true for face-to-face psychological support, and it is important that the Red Cross is able to provide anonymity for those seeking help.”

Changed landscape

The Red Cross also increased individual support such as clothing and food distribution, and worked with national social welfare institutions to respond to the crisis. The National Society is prepared to step up its assistance even further in the months to come.

“We expect much more need for assistance in the coming months as the financial crisis deepens and the consequences are more widely felt and more people lose their jobs,” says Halldorsdottir.

The Icelandic government swiftly acted on Red Cross recommendations to include a clause in new labour laws passed in January, where people seeking unemployment benefits through the national unemployment agency could sign up to become Red Cross volunteers while looking for a job.

The changed financial landscape also affected the international work of the Icelandic Red Cross. Severe deflation of the krona made it difficult for the National Society to keep its commitments in other parts of the world. Last year’s international budget of 350 million Icelandic krona yielded some US$ 5.7 million at the beginning of 2008, but a year later the same amount would only give a total of US$ 3.1 million.

The Icelandic Red Cross nonetheless managed to honour all long-term agreements made to its main partners in Africa and the Middle East through reorganization of plans and budgets. In an example of Nordic solidarity, the Norwegian, Swedish, Finnish and Danish Red Cross Societies pledged to assist the Icelandic Red Cross to meet its international obligations.

People gather in Reykjavik, the capital of Iceland, to protest against the government.






A man takes money from an automatic teller machine outside the Icelandic bank Kaupthing.
The value of the Icelandic krona has plummeted, leaving thousands of people in need.






Volunteer profile


Isabella Theodorsdottir

Isabella Theodorsdottir, 30, lost her job in a dental clinic in October 2008 due to the economical crisis. She had been wanting to become a volunteer for a while, but when she found herself suddenly unemployed she decided it was time to join the Red Cross. She now visits a young woman with an intellectual disability. “I am very outgoing and I need to be around other people, so this also works for my own benefit.”

Solveig Olafsdottir
Solveig Olafsdottir is director of communications at the Icelandic Red Cross.



The crisis hits home

Even before the crisis hit, many countries were already suffering a food and fuel crisis in which 130 to 155 million people fell into extreme poverty, according to World Bank estimates.
• Many developing countries face much tighter credit and higher interest rates.
• Gross domestic product growth in 2009 in developing countries is expected to fall to 4.5 per cent from 7.9 per cent in 2007.
• Remittances that workers send to home countries are projected to decline.
• Foreign investment and short-term credit are drying up.
• Developing country exports are falling; large amounts of capital have been withdrawn (source:
• Unemployment could increase by 20 million people.
• The number of working poor living on less than a dollar a day could rise by 40 million, those at US$ 2 dollars a day by more than 100 million (source:

Our response

The members of the International Red Cross Red Crescent Movement share concern about the humanitarian consequences of the global financial crisis.
• Natural disasters, conflict and the global economic crisis have left the world’s most vulnerable populations exposed as never before. We are extremely concerned that the poorest of the poor will be the ones to pay the real costs of the current financial crisis.
• We are closely observing the impact of the crisis on livelihoods, savings, pensions, employment, food prices, etc.
• We might have to increase humanitarian assistance because of deepening poverty, pay more for food aid to feed hungry people and ask donors for more money.


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