Euro better for currency restrictions

Joining the European Union (EU) and adopting the euro would create a better environment for lifting currency restrictions and bring greater stability and vitality to the Icelandic economy. The prospect of adopting the euro in the future would make it easier to lift restrictions quickly and would reduce economic volatility when the time came.

These are some of the findings of a scenario-analysis report compiled by KPMG on behalf of the Icelandic Federation of Trade, SA-Business Iceland, the Icelandic Confederation of Labour and the Iceland Chamber of Commerce.

Credibility and stability

According to one of the authors of the report, Svanbjörn Thoroddsen, credibility will be an important issue when the time comes to lift Iceland’s currency restrictions. EU membership and adoption of the euro as Iceland’s currency would lend the process the greater degree of credibility is needs.

The reports concludes that the prospect of adopting the euro will stabilise the economic environment by reducing fluctuations in the Icelandic króna (ISK), reducing inflation and stabilising interest rates. Businesses could plan for the future and make decisions more easily, foreign investment in Iceland would increase and fewer Icelandic companies would leave the country.

“Unwise and misguided to withdraw EU application”

The Icelandic Federation of Trade (IFT) has issued a statement indicating that the findings of the KPMG report tally with its own stance that it would be unwise to withdraw Iceland’s application to join the EU, particularly as regards the effect this might have on monetary matters in the future.

A resolution issued by the IFT on 27 January reads: “In spite of the current government’s view that there is no political justification for concluding accession negotiations [with the EU], it would be extremely unwise and misguided to reduce Iceland’s monetary-policy options by withdrawing our EU application.”

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