Grimsson Gives Progressives Mandate to Form Iceland Government

Iceland President Olafur Ragnar Grimsson gave the election runner-up Progressive Party a mandate to form a new government after the group surged in popularity amid promises to ease mortgage debt for consumers.

The party will be given the task of forming a government because it was the biggest gainer in the April 27 election, Grimsson said today in Reykjavik after meeting with Progressive Party leader Sigmundur David Gunnlaugsson. He will have until late next week to negotiate, Grimsson said.

The Progressives jumped 9.6 percentage points to 24.4 percent in the election after pledging to writedown mortgage debt for consumers. Grimsson unexpectedly chose the group ahead the Independence Party, which was the election winner with 26.7 percent of the vote. They both will have 19 seats in parliament.

The two opposition parties attracted voters burdened by high inflation-linked mortgage debt and as unemployment hovers at more than twice the level before the island’s economy collapsed in 2008. The shift comes four years after Icelanders took to the streets to oust an Independence Party-led government and hand power to a Social Democratic-led alliance.

The government, which included the Social Democratic Alliance and the Left Green Party, won a combined 23.8 percent. The Social Democrats plunged 16.9 percentage points. A Bright Future, a new pro-EU party, won 8.2 percent and the Pirates garnered 5.1 percent. A party needs 5 percent to get into parliament.

The Progressives have pledged to reduce consumer mortgage debt by using proceeds from writedowns on 450 billion kronur ($3.8 billion) of domestic-currency assets held by the creditors in the banks that failed in 2008.

Inflation spurred by krona losses has crippled households. With more than 80 percent of private debt linked to consumer prices, Icelanders are vulnerable to currency swings and owe domestic lenders about 1.43 trillion kronur in loans indexed to inflation. They’ve struggled to keep up debt payments as price gains hover close to 4 percent.

To contact the reporter on this story: Omar R. Valdimarsson in Reykjavik valdimarsson@bloomberg.net.

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net.

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