The Central Bank of Iceland believes Iceland’s economy could be greatly damaged if the bank is required to fund government debt relief plans. Prime Minister Sigmundur Davíð Gunnlaugsson dismissed the objections as politically related.
Vísir reports that Már Guðmundsson, the chairperson of the Central Bank of Iceland, told reporters that if the government intends to legislate funding to pay down household debts across the country through the use of a Central Bank-funded “debt correction fund”, this would be equivalent to simply printing more money. “And I don’t need to explain to you what effect that would have,” he said.
Þórarinn G. Pétursson, the head economist at the Central Bank, agreed, stating that he believed such a plan would be “the safest way to ensure that the national credit rating goes straight to [a] junk [rating]”.
While both Már and Þórarinn emphasised that they have yet to see any definitive plan from the government on how they plan to pay down household debt, and are therefore only offering their speculations, Prime Minister Sigmundur Davíð Gunnlaugsson believes many in the Central Bank already have their minds made up.
“There are some employees [of the Central Bank] who are constantly involved in politics,” he told reporters. “Who were, for example, involved in the Icesave matter. It seems to me they’re gearing up to be against this household debt relief proposal, no matter what it is. But we won’t let the Central Bank stop us.”
Relief of household debt was a major campaign promise of the Progressive Party, which the Prime Minister leads. No date has yet been announced as to when this proposal will be made public.
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