People demonstrate against the government in Reykjavik, Iceland.
People demonstrate against the government in Reykjavik, Iceland. - 
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Kai Ryssdal: Iceland was the most, you might say, unusual example of the problems caused by the financial crisis last fall. The entire economy was basically torpedoed by mortgage debt gone bad. Tomorrow, something completely different -- thousands of mortgage holders are expected to join in a national repayment strike.

From the Marketplace European Desk in London, Stephen Beard reports.

STEPHEN BEARD: One radio station in Reykjavik reckons that 75,000 people -- a quarter of Iceland's population -- could take part in the strike. For an initial period of two weeks the protesters will withhold all their loan repayments. Morino Njalsson is one of the organizers of the action.

MORINO NJALSSON: People are very angry because we feel the banks were gambling with the economy, with the currency, stealing, stealing our properties.

When all the country's major banks went bust a year ago, the currency collapsed. And that, says economist Magnus Arnu Skulason, has had a devastating effect on the many Icelandic mortgages priced in euros, and Swiss francs.

MAGNUS ARNU SKULASON: The Icelandic kroner fell by nearly half so those loans have doubled. The foreign-denominated loans. People are obviously struggling to pay off their mortgages.

At least 20 percent of the population are thought to owe more on their property than the property is worth. The IMF orchestrated a $10 billion bailout plan. But Iceland is just drowning in debt says former Foreign Minister Jon Baldvin Hannibalsson.

JON BALDVIN HANNIBALSSON: The IMF plan is not functioning. The government is drifting. And the problems are simply getting more difficult to solve.

Along with the repayment strike, there's now a political crisis. A leading member of the government resigned today, partly in protest over the huge cuts in public spending ordered by the IMF. Jon Baldvin Hannibalsson says when the cuts begin to bite next year there could be serious unrest.

At the European Desk, this is Stephen Beard for Marketplace.