Oct 7, 2008

Currency Crisis/ Is Iceland a step closer to the EU?


7 comments:

Pierre-Louis said...

what do you mean? they should adopt the euro???

F said...

Well, the Icelandic government has many times hinted at adopting the euro without joining the EU. But this is not possible under EU rules.
Inflation is at 15%, the current account deficit over 10%, the banking system on the edge of complete nationalisation after Glitnir and Landsbanki were taken over.

Trade unions are pushing the gov't to open negotiations to join the EU.

Dany said...

and why so much Euro-aversion in Iceland? Now I understand (not share at all) the Swiss europhobia, but Iceland?

F said...

@Dany:

well, they would like to join the benefits of the euro (its hard for such a small economy to sustain a floating exchange rate) without sharing the burden of membership.

Fear of losing sovereignty, or more understandably, of being diluted in such a bigger club, are the main components of their skepticism. Moreover, they don't like the Common Fisheries Policy, as they rely heavily on fish and wouldnt like to find spanish vessels in their waters...

they dont understand they could also go and fish in EU waters ;)

A very good source of poll data is
www.angusreid.com. Also, EuObserver is agood website..

Katya said...

Mmmm. How does joining the Euro zone save you from the bank-caused financial problems? Beside the very implicit ECB bail out guarantee, and we still have to see if it will ever help Estonia and the like. So far it is each country for itself. Iceland was in trouble way before the credit crunch started.

Who is f? :-)

F said...

@Katya

No, joining the euro is no medicine at all. I'm sorry if it wasn't clear in my words. According to Olli Rehn, the Eu enlargement commissioner, if Iceland applied now, it could finish negotiations quickly in late 2009 and join in 2010. Adopting the euro would be the final step and take longer.

If Ireland, for instance, did not follow the footsteps of Iceland is just because it is shielded by the euro and, so, the financial crisis didnt turn into a currency crash as well. This is something I would be aware of in Sweden, look at the krona getting dangerously closer to 10SEK/€.

Iceland is facing a series of trade-offs (inflation and Balance of payments, bank sheets and illiquid home market) which seem a merger of the ERM crisis ('92) and the Asian ones ('98).

If they enter the EU, that will be to prevent future volatility. Today it sadly seems like if the country will default soon.

F said...

By the way, I'm Francesco :)