Iceland - shape of things to come for taxpayers

[Rialtas]

To paraphrase Lincoln Steffens, I have seen the future and it is broken -

here is what the future looks like for taxpayers in highly indebted states according to one correspondent
ft.com/cms/s/0/2ff024fa-9271-11de-b63b-00144feabdc0.html

First, the freeze on mortgage repayments is due to end in November. The fifth of mortgages that are in yen or Swiss francs face a doubling of payments. Krona mortgages also face big increases in payments because they are tied to the consumer price index, which has shot up with the krona’s collapse. House prices are down 20 to 30 per cent, leaving many with houses worth only half the mortgage. The government asked the nationalised banks to show leniency, but repossessions will probably jump after mortgage payments are unfrozen.

Second, government spending, sustained so far by heavy borrowing, is due to be cut 20 to 30 per cent later this year, affecting health, education, social security and infrastructure. A wide range of taxes will be raised to try to eliminate the budget deficit by 2013. If the government accepts British and Dutch terms, Iceland’s taxpayers will take on an Icesave debt equal to half the country’s 2008 GDP.

Third, the capital controls that have protected against capital flight are to be eased as part of the process of financial reintegration; but at the cost of high interest rates, currently 12 per cent, which choke investment.

*The writer is professor of political economy at the London School of Economics *

The economic and political tipping points vary from place to place. But the news from the canary in the mine suggests people in other vulnerable economies in America and Europe should enjoy the good economic news while they can. There are good reasons to think it may not last.

[ewd3]

The government asked the nationalised banks to show leniency, but repossessions will probably jump after mortgage payments are unfrozen.

It’ll be interesting to see how this actually pans out in a country as small as Iceland.

almost everybody knows everybody.

Nationalised banks repossesing houses to sell to equally impoverished fellow icelanders at knock down prices just doesn’t seem like it will work…
I can see a second wave of default on the way and political revolution

[Rick_Flair]

@ewd3

The government asked the nationalised banks to show leniency, but repossessions will probably jump after mortgage payments are unfrozen.

It’ll be interesting to see how this actually pans out in a country as small as Iceland.

almost everybody knows everybody.

Nationalised banks repossesing houses to sell to equally impoverished fellow icelanders at knock down prices just doesn’t seem like it will work…
I can see a second wave of default on the way and political revolution

It wont just be Icelanders buying the property. Plenty of Danes too.

[FAUGH45568]

The bigger Issue is the stand off between the EU/Gordon Brown and Iceland…

It iwll be interewsting to see how that pans out over the next few weeks…

Ireland is heading the same overall route (Higher Debt) only slightly different…