ON SATURDAY the Icelandic government unveiled a mortgage debt relief programme worth about 150 billion krona (€913.5 million), financed by a tax hike on financial institutions and a haircut on debts owed to overseas investors in Iceland’s failed banks.
“The plan will assist over 100,000 households,” Prime Minister Sigmundur Gunnlaugsson said. “This will be the beginning of an economic renaissance.”
According to Reuters, the debt relief will apply to some ISK1.36 trillion (€8.3 billion) in mortgages linked to inflation, with a maximum limit of ISK4 million (€24,360) per household and totalling around ISK80 billion (€487 million) 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 ISK70 billion (€426 million).
The government said it would finance the measure through tax hikes on financial institutions and a haircut on around $4 billion (€2.9 billion) in debts owed to overseas investors in Iceland’s failed banks, which collapsed in late 2008.
Those debts are now mainly held by hedge funds, which bought them at a deep discount.
“The net impact on the Treasury is expected to be insignificant each year during the period 2014-2017,” the government said.
The Central Bank of Cyprus has given notice that there could be a haircut on non-performing loans. Perhaps a household debt relief programme similar to that announced by Iceland will follow?