1 The financial shock for the Icelandic households in the aftermath of the crisis made world headlines. The currency ISK depreciated 60%, inflation peaked at close to 20%, real wages declined by 13.5%, unemployment rose to 8.5%, real house prices fell by 1/3, stock prices collapsed and financial income decreased by 81%. These shocks caused large increases in households’ debt service burden, debt levels, and living costs, as well as deep declines in wealth and real disposable income. See Central Bank of Iceland, Monetary Bulletin vol. 15 no 2 (2013) p. 35 available on the internet at <http://www.sedlabanki.is/lisalib/getfile.aspx?itemid=d0637d5f-bd3a-11e2-af0e-001ec9ed78b2> (last accessed 28 January 2014).

2 Data on household finances is available on the site of the Statistical Office < http://www.statice.is/pages/2496>. The number of household in distressed declined due to policy intervention, wage increases and recalculation of illegal FX-linked loan after rulings from the Supreme Court. See Thorvardur Tjörvi Ólafsson and Karen Áslaug Vignisdóttir, Central Bank of Iceland, Households' position in the financial crisis in Iceland. Working Paper 59 (2012) available on the internet at <http://www.cb.is/library/Skr%C3%A1arsafn---EN/Working-Papers/Working%20Paper%2059.pdf> (last accessed 28 January 2014) and presentation held at Danmarks National Bank, Copenhagen, 29 January 2013 available on the internet at <http://www.sedlabanki.is/library/Skr%C3%A1arsafn/Erindi/ThTO%20Households%20position_Danmarks%20Nationalbank%2029%2001%202013.pdf>

3 For a summary of recent economic indicators see Thorvardur Tjörvi Ólafsson (from now on Ólafsson). Senior Economist of the Central Bank of Iceland, “Crisis responses to a housing bust and households’ debt problems. The Icelandic saga”, lecture at the conference “The Nordic housing markets: Main lessons and remaining challenges”, Stockholm, 15 November 2013 available on the internet at < http://www.sedlabanki.is/library/Skr%C3%A1arsafn/R%C3%A6%C3%B0ur--erindi-og-greinar/The%20Nordic%20housing%20markets%2015%2011%202013.pdf>

4 For a full description of regulatory measures adopted see Ólafsson, Crisis responses … 2013 supra note 3.

5 Ibid.

6 Act nr. 125/2008 on the Authority for Treasury Disbursements due to Unusual Financial Market Circumstances adopted on 8 October 2008 available in Icelandic at <http://www.althingi.is>

7 Regarding the domestic financial system, a “bail-out” or public rescue was unavoidable as the banks had to be recapitalized to cover the deposits. Regarding non domestic/external debt, a “bail-in” or private rescue was chosen where owners, shareholders, bondholders and investors suffered the losses.

8 Today there are four commercial banks operating in Iceland with no foreign competition: Landsbanki, Íslandsbanki (formerly Glitnir), Arion banki (formerly Kaupthing) and MP banki. Three saving banks were very important before the crisis but ended up in a process of resolution/winding-up in 2009: SPRON, BYR and Sparisjóður Keflavíkur. Together with these banks there are other financial institutions (ie. Lýsing specialised in car loans) and private pension funds offering credit to individuals (specially mortgage credit). The public institution Housing Financing Fund (HFF) (Íbuðdalánasjóður) offers credit to all Icelanders and reached a portfolio of 859 billion ISK in mortgage loans at the end of 2011. See Prime Minister's Office, Report on consumer protection in the financial markets (2013) pp. 20-21 available at <http://forsaetisraduneyti.is/media/Skyrslur/neytendavernd-a-fjarmalamarkadi.pdf > (last accessed 27 January 2014).

9 Ólafsson, Crisis responses … 2013 supra note 3.

10 The winding up of the banks is taking nevertheless longer than expected due to three factors: 1) the scale of the collapse and its cross-border aspects; 2) the determination of fair value of transferred assets and liabilities; and 3) the Supreme Court rulings declaring FX- linked loans illegal in June and September 2010 and the claims on recalculation of illegal loans. Ólafsson, Crisis responses … 2013 supra note 3.

11 Central Bank of Iceland, Monetary Bulletin (2013) supra note 1.

12 One may argue whether the financial institutions have “forgiven” or written-off credit/mortgage claims against debtors which they had no right to offer and/or claim in the first place under Icelandic legislation. From this perspective, debt-relief granted for illegal FX-indexed loans should be better referred as declaration of illegality of FX-indexed loans.

13 Ólafsson, Crisis responses … 2013 supra note 3.

14 Prime Minister's Office, Report on Consumer Protection in the Financial Markets (2013) supra note 8, pp. 6-8.

15 Omar R. Valdisson, “Iceland Banks Face $3.3 Billion Loss in Debt Relief Lawsuits”, Bloomberg, 5 September 2013 available on the internet at <http://www.bloomberg.com/news/2013-09-05/iceland-s-banks-face-3-3-billion-loss-in-debt-relief-lawsuits.html> and also in Icelandic, Eyjan-Pressan, “Bankarnir þurfa hugsanlega að afskrifa 400 milljarða”, 5 September 2013 at < http://eyjan.pressan.is/frettir/2013/09/05/bankarnir-thurfa-hugsanlega-ad-afskrifa-400-milljarda/ > (last accessed 28 January 2014).

16 Icelandic households owed the country's banks 1.43 trillion ISK in loans indexed to inflation, according to the reply of the Minister of Finance to the question asked by MP Margrét Tryggvadóttir from 8 March 2013 (available in Icelandic at the Parliament site on the internet < http://althingi.is/altext/141/s/1156.html> (last accessed 28 January 2014). Linking debt to the consumer price index has costed households 275 billion ISK from the beginning of 2008 through March 2012, according the news from Bloomberg of 5 September 2013, supra note 15.

17 According to the most recent report of the IMF on Iceland, the main macro-economic risk factor still pending is the finalization of the restructuring process of the banking sector and a clarification of legal issues still pending before the courts (ie. difficult cases on FX-indexed loans). The IMF does not refer to the most important issue now under judicial review: the potential illegality of too many indexed loans as financial institutions have consistently violated provisions of due information in force since 2001 and the consequences of partial nullity of indexation clauses which might derive under national/European private law. See IMF, Iceland Country Report 13/256 7 (2013) available on internet at <http://imf.org/external/pubs/ft/scr/2013/cr13256.pdf>.

18 This study is connected to the research project “Over-indebtedness of European Consumers after the Financial Crisis”, currently under way at the European University Institute (EUI) and led by Prof. Hans Micklitz. A presentation of provisional conclusions on Iceland was done at a conference in the EUI, Fiesole on 15 November 2013, see < http://www.eui.eu/seminarsandevents/index.aspx?eventid=83972>.

19 Vicent Navarro, “Lo que no se dice sobre las causas de la Gran Recesión”, columna “Pensamiento Critico”, diario Público, 28 January 2014 available on internet at <http://www.vnavarro.org/?p=10360>

20 Research of the Central Bank proves how too many households’ financial difficulties were provoked by imprudent lending in 2007 and 2008, when 16% of the total amount of new loans was granted to households already in distress. Up to 34% of households in distress at the end of 2010 were granted loans in 2007-2008, at a time when they were already financially distressed. General conclusions of Ólafsson and Vignisdóttir, Households’ position in the financial crisis in Iceland 2012, supra note 2.

21 See Ólafsson and Vignisdóttir, Households’ position in the financial crisis in Iceland 2012, supra note 2 especially Figure 5.5. Escalation of households’ vulnerability and the financial institution’ credit policies at p. 81 and p. 76.

22 Ólafsson and Vignisdóttir, Households’ position in the financial crisis in Iceland 2012, supra note 2 at p. 76.

23 EFTA Court , Case E-3/11 Pálmi Sigmarsson v the Central Bank of Iceland EFTA Ct. Rep. [2011] 432 at para. 56.

24 Jackie Mallet, “An examination of the effect on the Icelandic Banking System of Verðtryggð Lán (Indexed-Linked Loans)”, University of Reykjavik, Icelandic Institute for Intelligent Machines (2013) 1 et seq. also published as Report IIIMTR-2013-01-001 available at Cornell University Library online at < http://arxiv.org/pdf/1302.4112v1.pdf > (last accessed 28 January 2014).

25 The principal borrowed on indexed loans rose either because of inflation (the relevant inflation index has increased 37.5% since 2008 according to information provided by Statistical Office of Iceland < http://hagstofa.is > and/or because the devaluation of the local currency (ISK) devaluated by at least 50% against the euro (average exchange rate in 2008 1€= 85 ISK and from 2009 on 1€ = 160 ISK) (see historical exchange rates at Central Bank of Iceland <http://sedlabanki.is/ >.

26 Central Bank of Iceland, Regulation No. 492 adopted 21 June 2001. This regulation allows domestic price indexation of savings and loans provided it is based on the consumer price index CPI as announced monthly by Statistics Iceland, according to provisions of Act No. 38/2001 on interest and price Indexation (Articles 13 and 14). Article 14 reads: “Savings and loans may be price indexed in accordance with Article 13 if the basis of the price indexation is the consumer price index as calculated by Statistics Iceland in accordance with the laws applicable to the index and published monthly in the Legal Gazette. An index which is calculated and published in a specific month shall apply to the indexation of savings and loans for the following month. A loan agreement may, however, be based on a share price index, domestic or foreign, or a collection of such indices which do not measure changes to general price levels.”

27 A similar system of price-indexation of loans exists in the financial sector of Chile (indexation to consumer price index is done through the Unidad de Fomento UF). See Magdalena Iragüe and Aldo Madariaga, “Modelos de desarrollo, políticas públicas y desigualdad en el capitalismo chileno. El caso de la política de indexación económica”, Centro de Estudios Nacionales de Desarrollo Alternativo - Revista Nemesis 7 (2009) available on internet at <http://cendachile.cl/Home/publicaciones/autores/aldomadariaga/articulos-publicados/desempeno-institucional-del-sistema-de-pensiones-chileno> (last accessed 28 January 2014). As it is the case in Iceland, salaries are not automatically indexed and must be negotiated between employer and employee in a context of labor de-regulation, social demobilisation and antitrade union policies. This study concludes that this public policy of indexation in Chile protects the profit of certain companies such as banks, financial institutions and other sectors with important financial and damages the most vulnerable who see their income eaten up by inflation.

28 On the different theories of debt (nominalism vs. valorism) see Mann, F.A. The legal aspect of money (1938) republished by Oxford University Press, Oxford, 1992 and Kessler, Friedrich, “Book Review: Money in the Law” (1940). Faculty Scholarship Series. Paper 2713 available on internet at at <http://digitalcommons.law.yale.edu/fss_papers/2713>

29 Ásgeir Jónsson, Sigurður Jóhannesson and Valdimar Árman, Brice Benaben and Stefania Perrucci, “Nauðsyn eða val? Verðtrygging, vextir og verðbolga” (Necessity or choice? Indexation, interest and inflation), Report for the Association of Financial institutions SFF (2012) available on internet at <http://sff.is/sites/default/files/naudsyn_eda_val-verdtrygging_vextir_og_verdbolga.pdf> (last accessed 28 January 2014). See Chapter 7 “Inflation Indexation And Housing Finance”, pp. 171- 196 which presents a good summary of the problem in English with a history of inflation indexation in Latin America for comparison purposes and final policy suggestions for Iceland.

30 Prime Ministers'Office, Report of Expert group on the elimination of inflation-indexation in new loans, 23 January 2014 available on internet at <http://www.forsaetisraduneyti.is/afnam-verdtryggingar/> (last accessed 28 January 2014). The dissenting opinion of expert Vilhjálmur Birgisson proposes to prohibit indexation of all new consumer credit in Iceland since 1 July 2014 onwards and to restrict interest rates and indexation on existing indexed loans on the basis of the current situation of oligopoly and extortionate interest rates that the financial sector practices. A summary of his separate opinion in English is available on internet at < http://www.forsaetisraduneyti.is/media/frettir2/seralit-vilhjalms-afnam-vaxtatr-ensk-thyding.pdf> (last accessed 28 January 2014).

31 The EEA Agreement extends the internal market and several other important EU policies to the EFTA countries Iceland, Norway and Liechtenstein. Since Iceland is a dualistic country, EEA law has no direct applicability and it needs formal incorporation to the domestic order by the Icelandic parliament (Althingi). In this sense, the term “incorporation” of EEA law has a wider scope than the implementation of EU law since all EU/EEA law (regulations, decisions, directives and recommendations) must be formally approved by the parliament. Art 72 of the European Economic Area (EEA) Agreement, Annex XIX deals with provisions on consumer protection. See Agreement on the European Economic Area, (OJ 1993 L 1/3) (for EC and EFTA States) and also parallel Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice, (OJ 1994 L 344/1) (for the EFTA States).

32 OJ L 42, 12.2.1987, p. 48–53.

33 Act nr. 121/1994 on consumer credit was reformed to include the European provisions against unfair terms and unfair commercial practices in its Article 36. Article 12 Act nr. 121/1994 on consumer credit allows the indexation of the principal of the loan expost on condition that it is done following the disclosure and calculation rules of the Annual Percentage Rate of Charge (APRC) set by Directive 87/102/EEC on consumer credit. Act nr. 121/1994 can be accessed in English on internet at <http://eng.atvinnuvegaraduneyti.is/laws-and-regulations/commerce-and-trade-law/> Article 12 reads: In the case of credit agreements containing clauses allowing indexation or variations in the rate of interest and the amount or level of other charges contained in the annual percentage rate of charge but unquantifiable at the time when it is calculated, the annual percentage rate of charge shall be calculated on the assumption that the price level, interest rate and other charges will remain unchanged until the end of the credit agreement. [underlined by author]. This has led to the widespread practice where the cost of inflation is set aside (as unknown) with a value of 0%, an issue currently under judicial review by the EFTA Court.

34 Repealing Council Directive 87/102/EEC on consumer credit. OJ L 133, 22.5.2008, p. 66–92.

35 Act nr. 33/2013 on consumer credit (neytendalán) accesible in Icelandic on the internet at <http://www.althingi.is/altext/lagas/141b/2013033.html>

36 OJ L 95, 21.4.1993, p. 29–34.

37 “Unfair Commercial Practices Directive” amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council. OJ L 149, 11.6.2005, p. 22–39.

38 Iceland had been condemned by the EFTA Court for not implementing the Directive 2008/48/ on credit agreements for consumers in due time. See EFTA Court, Case E-12/12 EFTA Surveillance Authority v. Iceland, judgment of 15 May 2013, not yet reported.

39 Act. nr. 33/2013 supra note 35 entered into force on 1 November 2013 (except Art. 5). Until them, Act nr. 91/1994 on consumer credit was applicable.

40 While secured loans (mortgages for residential property) are excluded from the Directive 2008/48/EC on credit agreements for consumers, this exclusion is not applicable in Iceland since the legislator decided to expand the scope of the European protection given by previous Directive 87/102/EEC on consumer credit to all kinds of loans since December 2000/January 2001. Minister's Office, Report on consumer protection in the financial markets (2013) supra note 8 at p. 50.

41 While EU law treats separately consumer credit and mortgage loans, it is not forbidden to put them under the same regulatory framework in national law. Iceland has the national powers to do so which is confirmed by Scandinavian tradition and the CJEU, case C-602/10 SC Volksbank Romania [2012] ECR I-000 not yet reported. Judgment of 12 July 2012.

42 These institutions diverge on whether or not price-indexation (which increases de facto the cost of loans) falls into the scope of harmonization as “cost of credit” or not. The Commission thinks that, no matter its denomination or construction, Article 3 of Directive 2008/48/EC on credit agreements for consumers applies. Consumers must pay the amount of credit given and the total cost of credit announced. As indexation is cost of credit so it has to be calculated and disclosed using the formula of annual effective rate of charge (APRC). The ESA, on the contrary, holds the opinion that price-indexation might not be cost of credit per se but some additional charge for money currently falling outside the scope of European harmonization. At any case, both institutions agree that transparency and clarity of language for consumers are key factors. European disclosure information obligations concerning future indexation effects on the contract cannot be set aside as consumers need to assess ex ante their capacity to take on financial obligations. Letter from the European Commission and ESA to the author of 12.2.2013 and 20.3.2013. Letter from the European Commision to Homes' Association (Samtök heimilanna) of 15.2.2013.

43 Prime Minister's Office, Report on consumer protection in the financial markets (2013) supra note 8 at p. 7 and pp. 61-62.

44 EFTA Court, cases E-25/13 Gunnar V. Engilbertsson v Íslandsbanki hf. and E-27/13 Sævar Jón Gunnarsson v Landsbankinn hf. pending.

45 EFTA Court Case E-25/13 supra note 44, request for an advisory opinion sent by the Supreme Court of Iceland.

46 EFTA Court Case E-27/13 supra note 44, request for an advisory opinion sent by the District Court of Reykjavík.

47 Prime Minister's Office, Report of the expert group on the elimination of indexation for new loans, 23 January (2014). A summary is available on the internet (in English) at <http://www.forsaetisraduneyti.is/afnam-verdtryggingar/> (last accessed 28 January 2014).

48 Act nr. 100/2010 on the Ombudsman for Debtors in relation with Act nr. 101/2010 on debt mitigation for individuals, both available (in Icelandic) on the internet at <http://www.althingi.is>. The new Office of the Debtor's Ombudsman is to oversee and provide advisory and mediation services related to new debt mitigation procedures.

49 Temporary mitigation of credit debt under composition agreements was regulated by Act nr. 24/2009 and temporary mitigation of mortgage payments under judicial review by Act nr. 50/2009. Later on, debt mitigation was organized by Act nr. 101/2010. It is defined as payment of debt in accordance with financial capacities of debtor for a limited period (1-3 years). It can imply revision of terms of payment, reduction or cancellation of individual claims under the supervision of a representative appointed to that effect. For real state credit, the procedure falls under judicial scrutiny and it may lower the debtors’ financial burden for the duration of up to five years. All legislative acts are available (in Icelandic) on the internet at <http://www.althingi.is>.

50 Some banks decided to offer a variety of voluntary work-out measures beyond the minimum requirements in the agreed guidelines, including payment smoothing to specific groups of debtors, loan conversion with some reduction, interest rate reimbursements, reduction of interest rates, maturity extension, and possibility of debt write-offs. The unequal treatment of debtors between financial entities has been the source of discontent.

51 Prime Minister's Office, public announcement of 3 October 2010 available on internet (in Icelandic) at <http://forsaetisraduneyti.is/media/frettir1/Viljayfirlysing-um-adgerdir-v.-skuldavanda-heimilanna.pdf> (last accessed on 28 January 2014).

52 Act nr. 151/2010 adopted by the Icelandic Parliament on 18 December 2010 instructed banks to recalculate all illegal FXlinked home mortgages substituting the initial interest agreed by the parties by the interest published by the Central Bank with retroactive effects (ex tunc). On 15 February 2012 the Supreme Court in Iceland passed a ruling (No. 600/2011) declaring that this decision violated the provisions of the Icelandic Constitution that protects the freedom to hold property, as the legislator cannot pass a law that retroactively changes the rules on repayment of paid claims in good faith without adequate compensation. Disclaimer: The author of this article was the claimant in that case.

53 Ólafsson confirms that the most effective debt-relief measure came via judicial decisions and was not especially welcomed by the authorities under the supervision of the IMF at the time. Ólafsson, Crisis responses … 2013 supra note 3.

54 IMF, Country Report (Iceland) 10/95, Staff Report for Second Review Under Stand-By Arrangement 4 (2010) 43 available on internet at <http://imf.org/external/pubs/ft/scr/2010/cr1095.pdf> (last accessed on 28 January 2014).

55 Ólafsson and Vignisdóttir, Households’ position in the financial crisis in Iceland 2012, supra note 2 , at pp. 26-28.

56 Most recent data provided by Central Bank of Iceland, see especially Chart 4. Post-crisis write-off of household debt. Central Bank of Iceland, Monetary Bulletin (2013) supra note 1 at p. 36.

57 Ólafsson, Crisis responses … 2013 supra note 3.

58 Earlier data for 2012 was disclosed by Icelandic Broadcasting Corporation (RUV) and later confirmed by the authorities. In 2012 Icelandic households had a total of 196.3 billion ISK (about 1 billion pounds) “forgiven” of their debts (12% GDP). The write-offs consisted of 43.6 billion ISK due to the adjustment of residential mortgages to 110 per cent of the market value and 6.2 billion ISK for other debt relief provided for households in “serious” difficulties. Those two figures above resulted from public initiatives that tried to address the problem. The next two were incidental and brought by litigation and subsequent caselaw of the Supreme Court: 108 billion ISK for recalculation of illegal FX-indexed mortgage loans and 38.5 billion ISK for recalculation of illegal exchange-rate-linked car loans. News from Icelandic public radio/television RUV on 1.02.2012 available on internet (in Icelandic) at <http://ruv.is/frett/750-milljardaskuldir-felldar-nidur> (last accessed 28 January 2014). For a comment in English see blog from Ph.D. candidate Ólafur Margeirsson at <http://icelandicecon.blogspot.com.es/2012/04/didicelandic-households-receive-major.html> (last accessed 28 January 2014).

59 As it can be seen in a reply from the Government to the Parliament referring to data in 2012, the re-structuration of the debt has been three times more important for illegal FX-indexed loans than for ordinary inflation-indexed loans (estimation of 149 billions ISK vs. 53 billions ISK). See Reply from Minister of Work and Innovation to the question of MP Einars K. Guðfinnssonar with no date indicated at <http://althingi.is/altext/141/s/pdf/0575.pdf> (last accessed 15 December 2013).

60 Ólafsson and Vignisdóttir, Households’ position in the financial crisis in Iceland 2012, supra note 2 at pp. 26-28.

61 Ólafsson, Crisis responses … 2013 supra note 3.

62 IMF, “World economic outlook: Growth resuming, dangers remain”, Chapter 3 Dealing with household debt, 4 (2012) pp. 89-124 available on internet at <http://imf.org/external/pubs/ft/weo/2012/01/pdf/c3.pdf> (last accessed on 28 January 2014).

63 Ólafsson and Vignisdóttir, Households’ position in the financial crisis in Iceland 2012, supra note 2 at p. 32

64 Ibid. This data is confirmed later by Prime Minister's Office, Report from group of specialists on the over-indebtedness of households 11 (2010) available on internet at <http://forsaetis-raduneyti.is/media/Skyrslur/skyrla-skuldavandi-heimila.pdf> (last accessed on 28 January 2014).

65 Ólafsson, Crisis responses … 2013 supra note 3. A report on financial difficulties of the households published on April 2013 also provides data on the question of over-indebtedness in relation with negative equity of households. This has improved in the last years. The number of families with negative equity on their homes (owed more than the registered/market value of the property) remained stable until year 2007 around 5.000/7.000 households. After the financial crisis it went up to 25.000 at the year 2010. In 2011 it went down to 21.000 and the authorities expected a rapid diminution of this figure following recalculation of illegal FX-indexed loans and effect of several debt-mitigation and fiscal public policies adopted. The information from the Central Bank of Iceland on over-indebtedness of the families is confirmed and analyzed from several perspectives at the Report published jointly by Ministry of Labour and Innovation, Financial and Economic Affairs, Prime Minister's Office, Ministry of Internal Affairs and Ministry of Welfare, Analysis on the financial situation of households (2013) at p. 8 and pp. 18-19 available on internet at <http://velferdarraduneyti.is/media/Rit_2013/Greinargerd-um-fjarhagsstodu-heimilanna_april2013.pdf> (last accessed 28 January 2014).

66 Prime Minister's Office, Government Action Plan for Household Debt Relief (2013) available (in English) on internet at <http://eng.forsaetisraduneyti.is/debt-relief/> (last accessed 28 January 2014). For a comment see Omar Valdimarsson, Iceland Defies Creditor Backlash With Debt Relief: Nordic Credit, Bloomberg, 28 November 2013 available on internet at <http://www.bloomberg.com/news/2013-11-28/iceland-defies-creditor-backlash-with-debt-relief-nordic-credit.html> (last accessed 28 January 2014).

67 Prime Minister's Office, Action Plan (2013) supra note 62.

68 The IMF instead urged the authorities to complete the existing debt-restructuring process under way initiated by the previous government. In their opinion, this would address the problems of households in distress and support a healthy resumption of credit. Progress made by the banks could be better monitored addressing punctual delays at administrative and judicial level if necessary. A revision of legislation and regulations could be even considered while preserving the main policy. For the IMF, any new measures should target directly distressed households falling through the cracks of the existing framework. See IMF, Iceland Country Report (2013) supra note 17 at pp. 15-16.

69 In its 2013 Report on Iceland, the OCDE also recommended to focus debt relief on households in financial stress to reduce default risk most effectively. See OCDE, Economic Survey Iceland (2013), p. 24 available on internet at <http://www.fjarmalaraduneyti.is/media/frettir/2013-Iceland.pdf> (last accessed on 28 January 2014).

70 Researchers from the Central Bank assessed the effects of a hypothetical 20 per cent reduction of the principal of indexed mortgages and found that roughly 75 per cent of the write-offs would be granted to households which may not need it (not in distress). Two-thirds of distressed households would not escape financial distress despite the implementation of such an extensive measure See Ólafsson and Vignisdóttir, Households’ position in the financial crisis in Iceland 2012, supra note 2 at pp. 26-28. The OECD also advocated a limited approach, saying Iceland should instead raise rates and target relief only for financially distressed households. See OCDE, Economic Survey Iceland (2013), supra, pp. 9-11.

71 Moody's Investors Service. Iceland: Mortgage Debt-Relief Plan Is Credit Positive for Housing Financing Fund, Without Detriment to Sovereign Creditworthiness. Letter 16.12.2013 available on internet at <http://www.lanamal.is/en/investors/credit-rating/nanar/2857/moodys-iceland-mortgage-debt-relief-plan-is-credit-positive-for-housing-financing-fund> (last accessed on 28 January 2014).

72 Ibid.

73 Fitch, “Iceland Debt Relief Programme Appears Fiscally Neutral”, Article 9 December 2013, available on internet at <http://www.lanamal.is/en/investors/credit-rating/nanar/2836/fitch-iceland-debt-relief-programme-appears-fiscally-neutral> (last accessed 28 January 2014).

74 Borrowers can prepay HFF loans, while HFF bonds to investors (pension funds) are not callable.

75 Omar Valdimarsson, Iceland Defies Creditor Backlash With Debt Relief: Nordic Credit, Bloomberg, supra note 66.

76 Ibid.

77 Ólafur Margeirsson is the first scholar who used the term “jubilee” inspiring the title of this study. See his post from 2 December 2013 entitled The Icelandic Debt Relief at <http://icelandicecon.blogspot.com.es/2013/12/the-icelandic-debt-relief.html> (last accessed 28 January 2014).

78 As there is no widely accepted definition of “populism” among social scientists, I use this term referring to a political movement/ government policy where the diagnosis/analysis of real problems is painfully accurate (and that is why it becomes popular) but the solutions to these problems are false and counterproductive from a mid- or long term social economic perspective.