Rather than pump billions of euro into saving its banks in the wake of the financial crash Iceland let them fail and subsequently wrote off a portion of mortgage debt for struggling homeowners too.
In isolation, these are facts.
Without the proper context, however, it’s misleading at best to claim that Iceland succeeded in facing down the banks in favour of first and foremost helping its people recover from the devastating financial crash that crippled its economy.
The tiny North Atlantic population had no prospect of ever saving its banks which had bloated to multiple times the size of its economy, and so let them fail.
Its banking sector was significantly larger than Ireland’s in comparison to its GDP and it didn’t have the EU breathing down its neck either. It wrote off mortgage debt but to a lesser extent than had been expected and a far lesser extent than was needed.
Like Ireland, the country remains in the grip of a mortgage crisis.
Iceland’s though is born of a peculiar system whereby the principal owed on the mortgage rises with inflation.
After the country’s financial collapse, a policy that was perhaps questionable became a disaster.
“It is very depressing that you work all day and all your payment goes into this mortgage; these are big loans but they never lower them, they never get less. You never owe them less,” Helga Gumundsdóttir says.
“If the inflation is very low: 0.5% up to 1%, it’s bearable. Anything above that is unbearable,” her husband Teddi adds. After the crash, inflation hit 18%.
Still in their home, they’re the lucky ones though.
Gudmundur Asgeirsson lost his job, then his wife.
Now she and his three children are about to lose their home.
“The last thing I heard from my ex-wife about it was that she would just try to find a rental apartment somewhere. She has a steady income now so maybe she can afford it. I hope she can so my children won’t be homeless.”
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