PM: Iceland’s Economic Situation Worse than Expected Skip to content

PM: Iceland’s Economic Situation Worse than Expected

Prime Minister of Iceland Jóhanna Sigurdardóttir said after a meeting yesterday that the financial difficulties facing the Icelandic state and municipalities are worse than expected so state expenses will have to be cut back even further than anticipated.

Prime Minister Jóhanna Sigurdardóttir. Photo by Geir Ólafsson.

The PM, Minister of Finance Steingrímur J. Sigfússon, Minister of Business Affairs Gylfi Magnússon and representatives of labor and employer unions met at the Cabinet Offices on Tjarnargata in Reykjavík to discuss a so-called “stabilization pact” or “national reconciliation” on rationalization measures that all can accept, Morgunbladid reports.

According to Sigurdardóttir, the economic situation was reviewed at the meeting and the added uncertainty in regard to the economic growth was taken into consideration. “It is clear that we will have to work rapidly in the coming days and we decided to work on this project with increased force,” the PM said.

Sigurdardóttir explained that the government’s task forces will focus more intently on the work at hand: economic and employment issues, state finances and welfare issues.

“We are discussing what should be spared within the welfare system and what has to be sacrificed. It is extremely difficult; we are talking about gigantic measures and perhaps more extensive cuts, salary reductions and rationalization measures will be required since the situation is even worse than people had expected,” the PM said.

National reconciliation talks between the Confederation of Labor (ASÍ) and the Confederation of Icelandic Employers (SA) have been at an impasse since before last weekend because of disagreement on how promises regarding salary increases on the general employment market can be fulfilled.

Sigurdardóttir said the government is not planning to make any special proposals on the salary issues to push the discussion forward. “However, we reviewed banking issues in general and it appears that the banks can be refinanced in July, as planned.”

The PM also stated that she hoped that a conclusion in terms of loan agreements with the Nordic countries and Poland could be reached soon, as well as a resolution of the Icesave dispute.

Click here to read more about the national reconciliation talks and here to read more about the Icesave dispute.

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