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(Reuters) - Iceland could reach a deal with foreign creditors on a debt write-off before the end of the year and will use the money gained to reduce household debt, its new prime minister Sigmundur Gunnlaugsson said.
Creditors appear open to a deal based on early talks but the government is also preparing a plan B, which would involve setting up a temporary fund to pay for household debt relief and then recouping the costs once a deal is done, he said.
At issue is $3.8 billion (2.4 billion pounds) worth of Icelandic crown assets held in banks that failed in 2008, triggering the country's spectacular economic collapse and forcing the government to impose capital controls to save the currency.
"Hopefully we'll see something this year," Gunnlaugsson, who took office less than two weeks ago, told Reuters in Norway while attending his first major international summit.
Sigmundur Davíð Gunnlaugsson (born 12 March 1975) is an Icelandic politician who has been Prime Minister of Iceland since 2013. He has also been chairman of the Progressive Party since 2009. He was elected to the Althing (Iceland's parliament) as the 8th member for the Reykjavík North constituency on 25 April 2009. He currently represents the Northeast Constituency as its 1st member since 27 April 2013.
In the Althing election on 27 April 2013, the Progressive Party and Independence Party each won 19 seats. On 30 April President Ólafur Ragnar Grímsson asked Sigmundur Davíð to form a government. On 17 May 2013 Icelandic media reported that Sigmundur Davíð, as chairman of the Progressive Party, would become Iceland’s next prime minister while the leader of the Independence Party, Bjarni Benediktsson, would take up the position of Minister of Finance and Economic Affairs. He is the youngest prime minister in the history of the Icelandic Republic and the world's youngest democratically elected head of government.
The party ousted from government in 2009 after presiding over Iceland’s financial meltdown emerged as the biggest winner in the weekend’s parliamentary elections as talks start to form a ruling coalition.
The Independence Party, whose former leader and Prime Minister Geir H. Haarde was tried in court last year for economic mismanagement, won 26.7 percent of votes in the April 27 parliamentary elections. The Progressive Party -- a coalition partner of the Independents before Iceland’s banking collapse -- won 24.4 percent. The Social Democrats of Prime Minister Johanna Sigurdardottirsaw backing plunge by 16.9 percentage points to 12.9 percent. Together with their coalition partner, the Left Green Party, they garnered just 23.8
Icelanders who pelted parliament with rocks in 2009 demanding their leaders and bankers answer for the country’s economic and financial collapse are reaping the benefits of their anger.
Since the end of 2008, the island’s banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association.