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Economic Research

Iceland: Is Debt Relief Plan Too Radical?

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Under heavy public pressure, Iceland’s government has proposed plans for household debt relief. However, RGE believes the proposals are too radical in their current form, particularly a planned 15.5% write-down on mortgage loans, which the IMF is likely to oppose. The issue is that Iceland could set a precedent for other countries. While we do not expect the current proposal to be passed, some debt relief is inevitable given the level of political pressure. Banks will have to participate, but Icelandic taxpayers will likely end up bearing the majority of the costs. Figure 1:[...]

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