Iceland offers debt relief to homeowners

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Iceland has launched a massive debt relief package programme for householders.

Critics say the programme, worth around a billion euros, could hurt its credit ratings and even scare off foreign investors.

But Iceland’s prime minister believes that is a risk worth taking.

“The direct impact will reach 80 percent or so of Icelandic homes, but the indirect benefits will reach everyone. It will increase economic growth and purchasing power,” said Sigmundur David Gunnlaugsson

Iceland is slowly recovering from its deepest ever financial crisis, but many households are saddled with mortgages they cannot afford to repay, squeezing consumer spending and economic growth.

The government plans to provide homeowners with as much as half a billion euros in direct writedowns of home-loan debt and give nearly as much in tax exemptions over three years.

The deal is equivalent to 9 percent of Iceland’s ten billion euro economy.

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