Iceland’s New Plan for Debt Relief: Jubilee or Waiting for Godot?

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Despite Iceland's economic recovery, nearly 48% households continue to struggle to make ends meet. This study argues, first, that the main reason behind over-indebtedness in this country is a loan system without parallel in Europe, based on a triple cost of credit (fix/variable interest, indexation of credit to inflation and negative amortization). Second, the problem is examined in the context of European law as some alleged malpractices of indexation have been referred to the EFTA Court. Third, the focus shifts to the debt-relief programme presented by the Icelandic government in 2013/2014 after the relative failure of previous debt-relief measures. It is argued that this plan will fail in the long run as long as the indexation of credit to inflation is not abolished. The private pension system in Iceland relies indirectly on indexed mortgage credit issued by the public Housing Financing Fund. Since a ban on indexation and a holistic pension reform are not expected soon, all present debt write off benefits will surely be eaten up by higher inflation. As long as indexation of credit is legal, the future scenario resembles less a debt-relief jubilee and more the theater play “Waiting for Godot ”.
Original languageEnglish
Pages (from-to)517-530
JournalEuropean Journal of Risk Regulation
Issue number4
Publication statusPublished - 2014

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