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The Crazy Promise (JóB)

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Jóhannes Benediktsson's picture

joiben_dlSigmundur Davíð Gunnlaugsson is the new prime minister of Iceland. He came in second in this year’s election, but somehow managed to dominate the process of forming a new government. This column is about a crazy promise he made before the election—the one promise that got him elected. If he doesn’t keep it, his political life is over. All credibility will be lost.

Let’s look at the promise: Everyone with mutated mortgages, gets free money. The taxpayers won’t have to spend a dime and there will be no printing money. The money will come from evil people that live abroad.

This needs explanation. Mutated mortgages are products of the 2008 financial collapse. Real estate prices dropped, inflation grew and many experienced pay cuts, leaving inflation-indexed mortgage owners in a different position. These changes in the economical environment have been dubbed “the presumption failure,” and subsequently some consider that the mortgage have become “mutated.”

The evil people that live abroad are foreign investors, who invested in Iceland after the collapse. I have no idea why they are so evil, but the young prime minister sometimes refers to them as the vulture-funds. These investors have their money “locked in,” because of a post-collapse legislation, prohibiting free flow of capital from Iceland. The idea is simple: If the vultures want to get full control over their capital, they’ll have to pay for it. This vulture-money will then go to the mortgage owners. Almost every scholar or organization, that has an opinion on the matter, has criticized it heavily.

To name a few: OECD said that the promise will increase the uncertainty of the economic outlook. The IMF emphasized that those measures are costly and may not provide sufficient relief to households in most distress. S&P says it will pose a significant fiscal risk to Iceland. The Central Bank of Iceland says it’s an expensive operation and inefficient to help those who struggle the most.

But they don’t understand the idea, is the usual reply from Sigmundur and his political party. This is all just a big misunderstanding. Sigmundur has even rejected the criticism using the words: “Regarding OECD and IMF, and all of these organizations, I must say, that it doesn’t worry me much what opinion this or that abbreviation have on the matter.”

Concerned about the promise, Standard & Poor’s decided to cut the outlook on Iceland’s credit rating from stable to negative. Sigmundur’s colleague, Vigdís Hauksdóttir, responded to this action: “S&P is teaming up with the claimants [i.e. the vultures] and pose a real threat and try to create fear amongst us, telling us that the plan is undoable. Fortunately, we’re a sovereign state and in charge of our own budget—so, really, we don’t have to listen to this.”

This is madness! The critics are not our enemies. There is no conspiracy to create fear amongst us. And most importantly, there is no misunderstanding. The real reason for all the criticism is incredibly simple: Bad ideas get criticized.

But does Sigmundur realize all this? I have no idea. What I know, however, is this: Sigmundur has reached the point of no return. If he doesn’t proceed, his political life is over, and the Progressive Party would lose what remains of its credibility.

Meaning: they will do whatever they can, to carry through this nonsense operation.

Jóhannes Benediktsson – [email protected]

Jóhannes is filling in for Zoë today.

Views expressed here are the author's own and do not necessarily reflect the opinions of Iceland Review.