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AN unusually wise economist once said that, if you want to create the much-admired Danish economic model, you need to have Danes.
It came to mind reading that IMF analysis of schemes to write off mortgage debt. In this case, the authors admired the Icelandic model, where writedowns on household debt appear to have spurred economic recovery.
But I was intrigued to learn that the scheme was introduced when thousands of Icelanders took to the streets, demanding that something be done about the debts incurred buying house at what turned out to be hugely inflated prices.
One cannot easily imagine the famously phlegmatic Icelanders taking to the streets at all. There is probably a direct relationship between latitude and levels of protest; just as there is with the hooting of car horns.
But most protests -- including the civilised kind we have, by and large, had in Ireland until now -- are over direct threats to living standards; whether through higher taxes, smaller transfers from government, or loss of jobs.
Mortgage debt relief, while it might have a bigger impact on living standards than most of the others, is a bit amorphous and scattered for street protest. There are lots of financially distressed households, but they may not want to reveal themselves by joining a protest march.
Then Charles Darwin provided an answer. There are only 300,000 or so Icelanders, and most are related to one another. As well as fish, one of their biggest earners of foreign currency is taking part in medical trials, where the narrow genetic diversity provides useful information to researchers. That means, in Darwinian terms, that they have more reason to want to see their fellow citizens prospering than do those those who share fewer genes.
But, of course, we cannot exclude culture. An even wiser observer than that economist, John B Keane, opined that no one in Ireland will be satisfied until everyone is better off than everyone else.
You will not find a shorter explanation for the bubble, and not many finer ones either. Which is a problem for any semi-automatic scheme of mortgage debt relief. As the IMF itself pointed out, one person's relief is another person's cost, and the other person may not like paying it very much.
Even talk of such schemes provokes fury from those who think they know why so-and-so got so deeply into debt. There is no doubt that over-borrowing (or, if you like, over-lending) in mortgages allowed some conspicuous consumption, not only inside the house but outside, including exotic spots abroad.
It is very unfair to tar most distressed borrowers with the high-life brush. If house prices fall by 60 per cent and employment by 20 per cent, as they have done, there are bound to be many innocent victims. That does not mean those who escaped these calamities will be willing to see the others' debts and repayments reduced, while theirs remain the same.
The IMF researchers reckon that is why so few such schemes have been tried. There are winners and losers, and the losers may well be more vocal. There will be much beating of calculators to see if such a scheme is affordable in Ireland -- conceivably, it might be -- but, for the moment, it may be more fun to consider if it is politically plausible.
The Icelanders had one advantage; they were able to pay some of the costs by placing a levy on the banks. That is always popular. They also had an even more urgent problem. Many mortgage repayments were linked to the rate of inflation or the value of the currency. Since the kroner fell by 77 per cent after the crash, that spelt big trouble.
Even allowing for such differences, the evolution of the Icelandic scheme gives pause for thought. The first phase was based on something which has always seemed sensible to me: that the banks should be given a formula by which they must negotiate with borrowers (in this case based on house values and ability to repay).
Myself, I don't see why ability to repay shouldn't be the sole criterion, but even this approach proved too slow to give any hope of a boost to consumer spending and growth in a reasonable timescale.
Things were made even simpler, and quicker, with writedowns of mortgages in negative equity to 110 per cent of a household's "pledgeable" asset, which in Ireland's case would mean the value of the property.
Oddly enough, until that happened, borrowers were reluctant to take part in the scheme. They believed -- correctly as it turned out -- that more generous offers might be on the way. Imagine the chagrin of someone who bought a house too late, and then agreed debt forgiveness too soon.
It will probably be necessary in the end to do something of the kind in this country, but any government trying should tread very, very warily. We may not be Greeks, but nor are we Icelanders.
