Image: Fishing boats in Iceland
Randall Hyman  /  AP file
Before Iceland's economy started tanking in earnest last summer, the country was sometimes called the world's wealthiest nation, which made it almost absurdly taxing on a traveler's wallet.
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updated 3/15/2009 1:53:57 PM ET 2009-03-15T17:53:57

Given how shaky our own domestic economic situation has become, one might be inclined to echo John Bradford's timeless utterance when considering the state of affairs in Iceland. How bad is it? Well, it has been called "complete economic collapse." That sounds as bad as it gets, but what does that mean — did everyone have to vacate their homes and move into igloos? Here is an illustrative story:

When Iceland's krona was trading extremely high against all international currencies, even lay people found it advantageous to play the exchange market. They were financing things as mundane as mortgages and car purchases in foreign currencies, and then paying the loans back in kronur, which were worth a lot more than the foreign currencies. When the krona tanked, they found themselves upside down on most of their purchases and couldn't pay back the loans. As a result, Icelanders are taking out classified ads offering to pay other people to take their cars — along with the auto loans that were devastatingly taken out in foreign currencies.

The collapse was rapid and precipitous; before the economy started tanking in earnest last summer, Iceland was sometimes called the world's wealthiest nation, which made it almost absurdly taxing on a traveler's wallet. It was affordable enough to get there — $500 - $600 roundtrip fares from major Eastern U.S. airports were not uncommon — but once you were on the ground, it was a different story.

A one-way taxi ride from the airport could easily run you $120 or more; even the well-known Flybus cost about $30. But with the exchange rate now approximately about half of what it was last year, you can enjoy most of what Iceland has to offer for, well, about half price compared to just months ago.

While economic collapse thankfully doesn't come around too often, it can present an opportunity for travelers. Another region facing similar problems is Central and Eastern Europe. While these countries aren't in such dire straits as Iceland, you can still stretch your travel dollars in places like Bosnia, Bulgaria, Estonia, Hungary, Latvia, Lithuania, Slovenia, Slovakia and the Ukraine.

For countries using the euro, you may not see the full benefits of an exchange rate imbalance, but you will see more discounting and deals than have been available to U.S. travelers in some time.

Visiting economically bereft destinations
Using Iceland as the road map for traveling in economically challenged locations, it is accurate to say that you may not want to live in Iceland right now, but it's a great time to visit. If you are inclined to listen to list-makers, now is the time. The New York Times included Reykjavik on its list of 44 Places to Go in 2009, and they were echoed by Lonely Planet and countless other travel pundits and publications. Why visit a country in economic crisis? For Iceland, there is a simple answer: While the country isn't radically or inherently different than it was just a year ago, it is radically more affordable. You'll get the same meals, the same culture and especially the same natural wonders ... since the global financial crisis isn't likely to extinguish the Northern Lights any time soon.

And the locals are adjusting quickly. Now that the marauding bankers that have had their day cruising Reykjavik are mostly out of the picture, folks are turning to more prosaic business pursuits, such as leading tours of Iceland's desolate interior and whale watching excursions. Similar activities for travelers can be found all over the country.

Aren't we being opportunistic?
Well, possibly. You can see this glass half empty — that you are taking advantage of a country's ill tidings — or half full — that you are providing much-needed infusion of capital. Iceland, having relied irresponsibly on foreign money to fuel its boom, can now really use some foreign money after the bust.

What's the exchange rate?
How much has the krona collapsed? Compared to the boom times of just 500 days ago, when Iceland considered itself one of the wealthiest countries in the world, the krona is now worth a fraction of what it was — 58 kronur to the dollar in the boom times of November 2007 bottomed out at 152 to the dollar in December 2008. One year ago today, it was trading at 66 to the dollar; it is a little worse off than twice that at 114 to the dollar yesterday.

As above, in countries that adopted the euro, you are stuck somewhat with the European exchange rate. That said, an empty hotel is an empty hotel, and dollar prices for many rooms in these countries are dropping out no matter what the euro does.

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Makes sense — but what does it really cost?
So everything should be half price, right? Well, not necessarily. With interest rates soaring at over 15 percent in the middle of 2008, price inflation was inevitable. So although the exchange rate is far better, rising prices can cancel out any upside you might have enjoyed.

However, the facts play out very differently, particularly if you are buying in U.S. dollars. A recent scan of Reykjavik hotels on Expedia very quickly returned a host of four-star establishments in the $77 - $116 range, including the Hilton Reykjavik Nordica at $108 dollars a night. Try finding that rate back when international bankers zoomed around the streets in SUV's attending talks by celebrity investors and former presidents.

Meanwhile, the folks at Icelandair are similarly motivated, to say the least — in part because the Icelandic natives, globetrotters during more flush times, can't afford to travel anywhere except to work and back (and to the pub — this is Iceland after all). Here's an example of a low-priced roundtrip package deal from the U.K. that includes airfare, hotel accommodations and a whale-watching tour for a few hundred bucks.

Your best resource in tough times: The tourist bureau
Tough times cause folks to take on a wide range of "take what you can get" tactics: some will try to get every cent they can from unwitting outsiders, while others will offer great deals just to have the business. One steady resource in unsteady economic times will often be the government-run tourist bureaus; they are charged with seeing the big picture, and know that money you save on your hotel stay may well be spent elsewhere in their country. Their motivation is simply to have folks in the country and spending money, and they'll offer discount cards, reservation services, suggestions for low-cost outings and more. You can almost treat them like a travel agent in this regard, as they may be able to steer you away from declining hotels and outfitters on the brink of bankruptcy, and can come to the rescue if anything goes wrong.

So a ride on Reykjavik's reliable bus system will cost you about 75 cents; or you can buy a Welcome Cardand for a few bucks almost have the keys to the city.

What to expect from the locals
Almost anywhere you go, you can probably expect to talk about the economy — until the pub crawl is in full swing, that is. (What better place to forget your economic worries than the local bar?) Icelanders are very attuned to the situation; for example, a recent dispatch on the Icelandic Tourist Board site starts thusly:

"These have certainly been interesting times for our country. Being up here in our own little corner of the world doesn't make us immune to the economic downturn happening everywhere."

Then, as any good tourist promoter would, the writer subsequently throws off the gloom to continue, "Luckily, the days are getting longer and that extra bit of sunlight each day seems to brighten people's attitudes as well as the world around them and tends to give us all a little more energy. You know what else picks us up and gives us energy? Great food."

Any tourist board worth its road salt won't let a little thing like a complete economic collapse distract from long summer days and good times.

You may encounter some unwanted side effects, however. Unemployment rates in Iceland are soaring for the first time in a long time, and undoubtedly some of these newly jobless folks were staffing the hotels, restaurants, rental car counters and stores you hope to visit. As a result, a four-star hotel may not quite have four-star service. If you face this situation, keep in mind that you are paying $108 to stay at the Hilton, and that expectations may need to be tempered somewhat.

You may also witness strikes, protests and other public demonstrations, particularly in the city centers where a lot of tourism focuses. In most cases, tourists will not be of particular concern for protesters — although you may hear a bit of venom directed toward our own banking crises, which many cite as the catalyst for the global crisis.

This will vary considerably from country to country, depending in part on the severity of the crisis, as well as the overall national disposition and mood. In a place like Iceland, which is largely a peaceable farming country, you won't find too much trouble. In some Eastern European countries only recently ravaged by war and ethnic discord, you may find a different situation.

Many locals are in the midst of rediscovering the real Iceland, in a sense; a recent New Yorker article on the crisis quotes a local ruminating a return to knitting, saying, "I feel like I have Iceland back." Now you can have it too, if only for the duration of an inspiring and now affordable vacation.

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