In Iceland, the imminent eruption also raises fears of an impact on the economy

Ruined streets, rubble, cracked houses… The damage caused by hundreds of earthquakes in the small port town of Grindavik in southwest Iceland over the past ten days is already spectacular. Although 3,700 residents were evacuated on November 11 (they represent 1% of the population), their town, located on the Reykjanes peninsula, remains at risk of volcanic eruption. On Sunday, November 19, the local weather service predicted that this would happen in the next few days.

Icelanders, it is true, are used to such disasters: located between the tectonic plates of North America and Eurasia in the North Atlantic, their island has about thirty active volcanic systems. In March 2021, lava already erupted at Reykjavík near Mount Fagradalsfial, followed by two more eruptions in August 2022 and July 2023. “But they occurred in remote areas without threatening the city, unlike today, explains Michel Salle, Ph.D. in political science and co-author of the paper History of Iceland, from its origin to the present day (Talandieri, 2018). The biggest uncertainty is the consequences of a new eruption: they will vary greatly depending on the location and trajectory of the lava.”

The first damage already applies to Grindavik, respectively. “The special fund for natural disasters has 50 to 60 billion Icelandic kroner [325 à 391 millions d’euros]It is re-insured with the addition of a similar amount, and the state guarantees the loans if additional needs are needed.” explains Thorolfur Mathiason, an economist at the University of Iceland. Enough to cover much of the rebuilding of homes and infrastructure, which will take months. The government has also introduced bills to guarantee Grindavik workers’ wages for at least three months.

The international airport is not accessible

In Icelandic memory, the location of this fishing port evokes the memory of January 23, 1973, when the volcano Eldfell erupted overnight on Heimai, one of the Icelandic islands of the Vestman Archipelago. The lava flow threatened to block the entrance to the port and destroyed many houses. “The cost of repairs made 5.5% of the country’s gross domestic product. “, Adds Thorolfur Matthiasson. Eight hundred of the 5,300 residents never returned to Heimai. And Iceland’s inflation jumped from 25% to 42% in 1973-1974, in part due to the strain on the labor and construction markets caused by the reconstruction of houses. “For the same reasons, operations in Grindavik could lead to inflationary pressures in the coming months.” Mr. Mathiason believes.