Monday

16th Sep 2019

Unilateral adoption of euro possible option for Iceland, says economist

  • Discussion of Iceland unilaterally adopting the euro without joining the EU has increased lately (Photo: Wikipedia)

Unilateral "euroisation" of Iceland's economy is possible without a loss of independence, but the country must choose between the krona and the euro soon, a prominent economist told the Icelandic Chamber of Commerce yesterday (13 February).

"Because of the exceptionally high degree of exchange rate pass-through into domestic prices and equally exceptional financial openness of Iceland, unilateral euroisation would not be sacrificing much effective monetary policy independence," Richard Portes, the president of the Centre for Economic Policy Research in London, told a meeting of the business group, according to the Financial Times.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

Mr Portes, who produced a report on the island nation's economy for the chamber last year, was invited following increasing discussion driven by some banks and other companies to comment on Iceland adopting the euro unilaterally without first joining the European Union.

He also said that a gradual euroisation of the country's economy was "highly problematic and probably unstable."

The country's central bank refused to give permission in mid-January to Iceland's biggest company, the Kaupthing to adopt the euro as its main currency.

Other commentators have come out in favour of the unilateral adoption of the euro as a panacea for the country's ongoing currency volatility problems.

The prime minister, Geir Haarde, speaking at the same meeting, disagreed strongly with the economist's analysis, saying Iceland only has two choices in terms of monetary issues: either keep the krona, or join the EU and then adopt the euro. Unilateral adoption is not an option.

"Such a step would not be credible and it would bring a number of disadvantages and additional expenditure," Mr Haarde said.

"Membership of the EU is not on the agenda of the present government and therefore not adopting the euro either," he insisted.

A European Central Bank board member also attended the meeting, and said after Mr Portes' comments that the ECB was opposed to any non-eurozone country adopting the euro unilaterally, reports the Financial Times.

Steingrímur Sigfusson, the chairperson of the eurosceptic opposition Left-Green Movement, told EUobserver that the whole debate is being pushed by a few firms and that a majority of the chamber of commerce is actually opposed to membership of the EU.

"The discussion is overheated due to the situation in the Icelandic economy and the global economy," he said. "Two thirds of the members of the chamber of commerce said in a recent poll we shouldn't apply for EU membership."

"If we adopted the euro, it would mean we would have to give up our monetary policy control. Furthermore, it would be the same as declaring to the world we don't have the self-confidence to control our own economy," he added.

"It's giving up. Instead of fluctuations in the currency, we would have fluctuations in employment instead."

Unilateral adoption of the euro by a non-EU state is not without precedence. Montenegro adopted the euro in 2002 while it was still part of a union with Serbia. Kosovo is also using the currency although the Serbian dinar is used in areas mainly populated by the Serbian minority. However, the EU discourages the practice.

Analysis

How should the EU handle Russia now?

Should the West help the Russian opposition to try topple the regime, or make new deals with Putin, as France is keen to do?

Central European leaders demand EU Balkan accession

Czech Republic, Hungary, Poland, and Slovakia have demanded to open accession talks with North Macedonia and Albania this year, as Hungary's man prepares to take over the enlargement portfolio.

Just 5% of Europeans trust Trump

European voters believe that EU's foreign policies should be more coherent and effective in order to remain neutral in potential international conflicts, since most EU citizens no longer rely on the US security guarantee, according to a new report.

News in Brief

  1. Saudi oil production in flames after drone attack
  2. US: attack on Saudi oil came from Iran or Iraq
  3. Poll: Belgium's far-right Vlaams Belang largest party
  4. Nationalist parties to support Sanchez if he makes deal
  5. EU finance ministers support simplification of fiscal rules
  6. Italy's Renzi ready to set up new political force
  7. Two independents come top in Tunisia presidential election
  8. Nearly 100 refugees evacuated from Libya to Italy

Opinion

Time to pay attention to Belarus

Belarus may be hosting the European Games, but Vladimir Putin is not playing games when it comes to Belarus' independence. The West needs to get serious as well.

Analysis

EU should stop an insane US-Iran war

"If Iran wants to fight, that will be the official end of Iran. Never threaten the United States again!", US president Donald Trump tweeted on Monday (20 May).

Stakeholders' Highlights

  1. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  2. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  3. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  4. Nordic Council of MinistersNo evidence that social media are harmful to young people
  5. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  6. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  7. Nordic Council of MinistersEducation gets refugees into work
  8. Counter BalanceSign the petition to help reform the EU’s Bank
  9. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  10. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  11. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  12. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat

Latest News

  1. France urges EU virtual currency rules amid Libra risk
  2. Brexit and new commission in focus This WEEK
  3. As recession looms Europe needs more spending
  4. How should the EU handle Russia now?
  5. EU defence bravado criticised by auditors
  6. Central European leaders demand EU Balkan accession
  7. Luxembourg's cannabis legalisation is EU opportunity
  8. The Catalan National Day has been a success. Why?

Join EUobserver

Support quality EU news

Join us