Iceland PM tells failed banks to pay up

sigmundur david littleFollowing his controversial announcement on November 30th to wipe 150 billion króna off household mortgage debt, the Icelandic prime minister now intends to pass the bill on to the failed banks.

Sigmundur Davíð Gunnlaugsson has said it’s time to speed up the exit strategy of recovery programs for Glitnir Bank hf and Landsbanki, under supervision of committees comprising of foreign creditors. This will help the country ease capital controls that are hampering the country’s progress.

He also intends to start taxing these banks as a ‘natural next step’ towards raising money to offer relief to ordinary Icelanders who have suffered financial pressure since their collapse in 2008. This proposal will see banks paying 0.366 per cent on debt instead of the present 0.041, affecting their creditor’s pockets as well. Previously he hinted that these creditors would have to take a write-off hit as well.

“When the failed banks collapsed in 2008 it was at a tremendous cost for the society as a whole,” Finance Minister Bjarni Benediktsson said in an interview. “Similar companies in other countries, which have been either resurrected or saved by the government, have had to pay much increased taxes and, in some countries, fines.”

But the banks, not all of whom had to be saved, have hit back, complaining in a letter to parliament that it violates the constitution. The Financial Services Association in Reykjavik says banks have forgiven $2 billion in debt since 2008, which is extremely generous relative to the nation’s GDP.