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Icelandic MP wants to write off 20% of household mortgages

Sigmundur David, chairman of the Progressive Party Sigmundur David, chairman of the Progressive Party

Mr. Sigmundur David Gunnlaugsson, chairman of the Progressive Party, wants to reach an agreement with the foreign creditors of the fallen banks in Iceland where they hand over part of the profit from their claims on the banks, and that money would be used to write down household mortgages.

Sigmundur says that if the creditors don't play along, the government should tax them and get the money that way. If the foreign creditors would get all their claims paid out, they would likely take the money out of the country. That would put a large pressure on the krona and it is believed that Iceland would not be able to handle this, because the country does not have enough foreign currency income to allow all this money to leave. The króna would depreciate too much.

Another MP, Lilja Mosesdottir, has said that she wants to nationalize all these claims so that the foreign creditors get nothing. She says that this is necessary because Iceland cannot handle any further outflow of money. The governor of the Central Bank of Iceland, Dr. Mar Gudmundsson, has said that a 75% tax on money outflow might be feasible.

Many mortgages in Iceland are price indexed, that is indexed to the inflation. The principal of these loans increased substantially after the financial crisis, because of the high inflation that Iceland experienced. Sigmundur David wants to correct this, and write down price indexed mortgages that were taken before the crisis by around 20%. These write offs would be very costly, it has been estimated that they might cost well over 1.2 billion EUR, and the government cannot afford that. So it is suggested to get that money from the foreign creditors.

It looks like the foreign creditors of the fallen banks in Iceland are caught between a rock and a hard place, and it will be interesting too see in the near future what happens to their claims. But it is likely that they will have to give up at least part of their claims. There is a lot of money at stake, but the claims owned by foreign creditors are worth billions of euros. News of Iceland recently reported that general creditors of the defaulted Landsbankinn will receive 225 billion ISK, or around 1.4 billion EUR. See here.

Parliamentary elections will be on April 27th, and according to recent polls the Progressive Party is one of the largest parties in Iceland. They gained a lot of support following the EFTA ruling in the Icesave case.

 

Source: http://eyjan.pressan.is/frettir/2013/03/24/abyrgdarleysi-ad-taka-ekki-a-theim-verkefnum-sem-samfelagid-stendur-frammi-fyrir/

 

Last modified on Sunday, 24 March 2013 11:46

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