Iceland unions push government to join EU

But the quid pro quo demanded by the unions is that the government apply to join the European Union and adopt the euro, according to reports in the Morgunbladid newspaper.

A PFA memorandum argues the country's deepening financial crisis cannot be solved so long as Iceland holds on to the volatile krona, which has fallen 20 percent against the euro in the last month.

"Therefore we should aim for EU membership and the adoption of the euro as soon as possible," the Times of London quotes the document as saying.

Membership in the bloc has long been opposed on the small North Atlantic island - whose population numbers only 320,000 - largely due to concerns over loss of control over fishing grounds under the EU's Common Fisheries Policy.

In 1994 Iceland signed the European Economic Area (EEA) agreement with the European Union, allowing it to participate in the European Single Market without having to join the EU.

On 23 September, Iceland's European Committee, a body of government, trade union and industry representatives, met with EU officials to find out whether there were any legal blocks to Iceland adopting the euro unilaterally without joining the bloc.

But enlargement commissioner Olli Rehn said "the euro can only be adopted through European Union membership" after he met with the delegation, the Frettabladid newspaper reported.

Mr Rehn added that if Iceland were to apply for membership, negotiations would take less than a year to be completed.

In a separate move, the Icelandic government is expected on Monday (6 October) to announce an injection worth several billion euros into the country's central bank.