New Icelandic myths

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Iceland's Tories, the Independence Party, apparently had good reason to feel satisfied with the last year as they announced a new debt relief plan.

Having presided over Iceland's spectacular financial collapse in 2008, they were returned to office in May.

Despite only receiving a slight increase in their vote, and being forced into coalition with the liberal Progressive Party, they won the finance ministry for their leader Bjarni Benediktsson.

Cancellation of housing mortgage debt was Progressive Party prime minister Sigmundur David Gunnlaugsson's big election promise. It is supposed to be "the launch pad for Icelandic society to begin a new era of growth".

The plan is to cancel mortgage debt of up to 4 million Icelandic krona - almost 21,000 pounds for each affected household - from summer 2014, although it won't be automatic as each mortgage owner will have to apply to their lender for the relief.

The plan will cost about 790 million pounds over the next four years and the government said it will "collect increased revenues" - taxes on financial institutions and the "winding-up committees" of the collapsed banks - to cover 419 million pounds.

But the assets of the banks that collapsed in 2008 own chunks of current banks Arion and Islandsbanki so it is also possible that the cost of these taxes will be passed onto ordinary account holders. And it will not help those who have already had their house repossessed.

For the rest, there will be income tax relief of up to 6 percent to repay mortgage debt for three years. And workers will be allowed to transfer 400 million pounds of their own pension money to pay off housing debt that ballooned because of a financial crisis which they didn't cause.

But the Tories were banking on this good news translating into a pre-Christmas boost for the economy. Ordinary people were supposed to respond to money promised for next summer with celebratory shopping.

So it wasn't great for the Tories to hear that three days after the new debt relief scheme was announced 66 percent of people polled for conservative newspaper Morgunbladid said its impact would be small or negligible.

Iceland is frequently hailed as a model response to the financial crisis where the bankers, rather than ordinary people, paid the price.

Only last month four bankers from the bankrupt investment bank, Kaupthing, were sentenced to between three and five and a half years in jail for fraud.

They were responsible for a cheap loan of 31 million pounds to a Qatari owned offshore trading company to buy 5 percent of the bank's shares in a desperate attempt to disguise Kaupthing's true value two weeks before it finally collapsed in 2008.

But it is a myth built on slashed pensions and lost savings. The unemployment rate may be down to just over 5 percent, but this is because so many have left to work abroad.

The latest poll said only 8 percent of medical students planned to stay in Iceland after graduation and more jobs are going from state universities and the national broadcaster.

The October 2013 budget amounted to a package of cuts worth 12 billion krona including cuts to the health service.

Bjorn Zoega, boss of Iceland's national hospital, resigned over the cuts. Staff morale in the main hospital is reportedly very low as wages are eaten into by inflation and price rises.

Projects such as a new nursing home for the elderly in the capital, Reykjavik, have been postponed and operation waiting times are growing.

Working class families are struggling with food prices that have risen by at least 15 percent in three years though meat prices have gone up by 30 percent.

Rents in some areas have doubled and there are around 200 homeless people in Reykjavik this winter where the homeless shelter cannot cope.

The Social Democrat and Left Green Alliance coalition government voted out in May actually cancelled more debt than the Tories are now proposing and brought in schemes such as a guaranteed council job for those unemployed for over three years.

Those schemes were not renewed at the end of December so now the long-term unemployed will only get their benefits cut. And at the end of the year the government was considering cutting child benefits as well.

The level of resistance in 2013 was low but in December 10,000 people signed a petition against cuts to the state broadcaster and there were some protests at the job losses announced.

Iceland's Tories are as vicious as our own and hiding behind their mantra of paying off the debt while Iceland's working class pays.

But they are also weak and unpopular and would struggle to survive any organised resistance.