Iceland stability pact further details

The following information comes unedited from a government press release:

Agreement has now been concluded on a Stability Pact which forms a cornerstone in the government’s plans for economic reconstruction. Leaders of central and local government, employers’ and employees’ associations signed the agreement in the Cultural House today. The Stability Pact covers many of the principal factors concerning which uncertainty has been high in recent months and will serve as one of the main pillars to support further rebuilding of the economy.

“It is an extremely important step, and a crucial premise for the reconstruction work in coming quarters,” said Prime Minister Jóhanna Sigurðardóttir. “Now we have a map showing the route that employers and workers in both the private and public sector, together with the state and municipalities, have agreed we should follow. I am very pleased that this agreement has been reached and thank everyone who has been involved for their unceasing efforts and unselfish contribution.”

The aim of the Stability Pact is to promote economic recovery. Upon commencing the negotiations, the contracting parties agreed on specific benchmarks: by the end of 2010 inflation will not be higher than 2.5%, the deficit in public finances will not exceed 10.5% of GDP, the exchange rate will have stabilised and the ISK strengthened to move closer to the real equilibrium exchange rate. The difference between domestic and Eurozone interest rates will be less than 4 percentage points. This will create the conditions for increased investment by both domestic and foreign parties, stronger growth, boosting employment and laying the foundation for improved living standards in the future. In tandem with the conclusion of this pact, the social partners have joined forces to remove labour market uncertainty, by concluding collective bargaining agreements valid until the end of November 2010, which emphasise improving the situation of lowest income groups.

The highlights of the pact are as follows: .

* Collective bargaining agreements in the private sector will be extended until the end of November 2010. Collective bargaining agreements will be concluded with public sector employees in a similar vein as soon as possible.
* The planned fiscal measures action plan until 2013 was presented and a joint understanding reached on its objectives for the period 2009-2011.
* Tax increases will not comprise more than 45% of the extra amount needed to ensure a balanced state budget.
* Major emphasis will be placed on ensuring improvement to the position of debtors and indebted households. The government will review and revise the remedies available and make proposals for improvements as necessary.
* Measures to encourage increased employment place emphasis on facilitating major projects and enlisting the co-operation of pension funds in participating in financing projects.
* Plans put forward with fixed dates for reconstruction of the banking system and the state’s ownership policy; non-Icelandic parties will be able to acquire holdings in Icelandic financial undertakings, in part to facilitate access to credit. Restructuring of bank ownership to be completed by 1 November 2009.
* Joint benchmarks set for recovery in business and industry and the involvement of public parties in industrial operations and ownership of commercial enterprises.
* A fixed schedule for exchange rate measures, including providing a schedule by 1 August for the removal of currency controls. The objective is to ensure ISK stability.
* Efforts will be made to remove restrictions on new investment by 1 November 2009.
* The social partners have stated that interest rates must decrease and have reached the single-digit range by 1 November.
* Joint actions in local government affairs concerning co-operation in economic issues and harmonisation of information and actions in public administration.
* A future vision for pension fund matters will be examined and all decisions on cutbacks to pension entitlement and financing postponed while this examination is underway.
* Active co-operation on workplace surveillance and the introduction of workplace identification to ensure workers their full rights and combat illegal employment and abuse of unemployment benefits.
* Implementation of the government’s statement of 17 February 2008 concerning the rights of workers to an Employment Retraining Fund, Illness and Education Funds and Adult Education.