Iceland plans €900m debt relief scheme for homeowners
Iceland is planning a IISK150bn (€900m) debt relief programme for home owners in a move that could hurt its credit ratings and critics say risks scaring off foreign investors.
Iceland is slowly recovering from its deepest ever financial crisis, but many households are saddled with mortgages they cannot afford to repay, squeezing consumer spending and economic growth.
"The plan will assist over 100,000 households," Prime Minister Sigmundur Gunnlaugsson said. "This will be the beginning of an economic renaissance."
Debt relief will apply to mortgages where borrowing costs are linked to inflation, with a maximum limit of ISK4m (€24,000) per household and totalling around ISK80bn over the four-year period of the programme.
Mortgage holders will also be given tax breaks to encourage them to use pension savings to pay down their borrowing, a measure worth about 70 billion krona
A centre-right coalition of the Progressive Party and the Independence Party has promised to reduce the financial burden on households.
The government said it would finance the measure through tax hikes on financial institutions and a haircut on debts owed to overseas investors in Iceland's failed banks.
Those debts are now mainly held by hedge funds, which bought them at a deep discount.
Iceland's financial system and currency collapsed in late 2008 and it was bailed out by international lenders.
It exited that programme earlier this year, but growth remains sluggish and inflation is still well above the central bank's target.