Skip to content
All about finance. — Environment — Business — Finance

In simpler terms, the high-interest setting acts as an insidious vortex, vacuuming up funds.

Parliament Member Hanna Katrín Friðriksson from The Liberal Reform Party argues that reducing interest charges, currently the third largest expense, could foster financial sustainability and responsible management, creating a prosperous economy without the necessity to constantly borrow money...

,   and  Administrator
3 min read
In a recent statement, Hanna Katrín Friðriksson, Liberal Reform Party's Parliament member,...
In a recent statement, Hanna Katrín Friðriksson, Liberal Reform Party's Parliament member, suggests that if interest charges weren't Iceland's current top third expenditure, economic stability alongside fiscal responsibility could be achieved, avoiding the constant need to borrow funds to maintain living standards.

In simpler terms, the high-interest setting acts as an insidious vortex, vacuuming up funds.

Rewritten Article:

Hanna Katrín Friðriksson, a Member of Parliament representing The Liberal Reform Party, has voiced concerns about the excessive expenditure on interest charges in Iceland. She suggests that, if this issue were addressed, it would enable sustainable prosperity alongside responsible economic management, rather than relying on continuous borrowing to sustain the country's standard of living.

Debating the Deficit and Interest Rates in Althingi

In the recent debates held in Althingi, Friðriksson pinpointed how the state's interest costs have escalated significantly due to the government's deficit operations and debt collection. This reality, she says, serves as a stark reminder of the price Iceland pays in its high-interest environment. "It's like a magical money-sucking vortex that drains funds we could otherwise invest in our welfare system," she remarked.

Iceland's Interest Rates: A Comparative Perspective

She emphasizes that, as a percentage of GDP, interest-rate charges in Iceland outstrip those of neighboring countries, by five to six times, and far exceed rates in other Nordic countries and international states. Surprisingly, Iceland's interest rates surpass those of nations that carry considerably higher debt loads than Iceland.

Next year, interest expenses in Iceland are expected to reach 95 billion ISK—a figure potentially minimal compared to the entire education sector's annual budget, but greater than combined contributions to transportation and healthcare. "Imagine the improvements we could achieve with this amount," Hanna Katrín said, urging people to keep the interest rate differential at the forefront of their minds.

Comparatively, she notes that long-term interest rates in the EURO area are only half the size of local interest rates in Iceland.

"Cutting interest charges in half in Iceland would mean savings around 40-50 billion ISK, roughly equivalent to our annual Health Insurance contributions. These funds could support contracts with self-employed psychologists, speech therapists, specialists, and other professionals," she suggested.

The Impact of High Interest Rates

In recent years, interest expenses in Iceland have swelled by 50-60 billion ISK, and next year, they are expected to plateau at 95 billion ISK. It's worth considering what could be accomplished with these funds, she added.

To an extent, Iceland's higher interest rates might reflect factors such as:

  1. Monetary policy choices, with independent decision-making unaligned with European neighbors, potentially influencing interest rate decisions.
  2. Economic instability and higher debt loads, making borrowing more expensive.
  3. Isolation of the Icelandic króna, the country's unique currency, impacting foreign exchange rates and borrowing costs.

While Iceland's specific economic conditions and policy choices contribute to its interest rates, the implications for both the economy and welfare system are significant:

  1. Economic Impact: Higher interest rates can elevate debt costs for individuals and businesses, possibly hindering economic growth and increasing debt burdens. Additionally, they can help control inflation by decreasing consumer spending and demand, attract foreign investment, and improve financial stability.
  2. Welfare System Impact: High interest rates can lead to increased social costs as families and individuals face increased mortgage payments and other loan burdens, potentially compromising social welfare programs. Moreover, higher interest payments on government debt could reduce the government's ability to fund social programs and welfare services.

With Iceland grappling with higher interest rates compared to its neighbors, it's crucial to examine the reasons behind these differences and their long-term implications for the Icelandic economy and welfare system.

  1. In the context of the discussed debates, Hanna Katrín Friðriksson proposes that reducing interest expenses could enable not only sustainable economic management but also investments in the welfare system, as these funds are currently being drained by Iceland's high-interest environment.
  2. Comparing Iceland's interest rates with those of neighboring countries, Hanna Katrín Friðriksson points out that a decrease in interest charges by half could result in savings of around 40-50 billion ISK, equivalent to annual Health Insurance contributions, which could support contracts with various professionals in the health sector.

Read also:

    Related

    Latest