Rumours are circulating in some European countries that Iceland may be about to adopt the euro. The rumours have been picked up by some foreign media such as the Danish daily Berlingske Tidende as well as the Financial Times. These rumours are, however, totally unfounded.
Certainly, there has been some ongoing discussion in Iceland about whether adopting the euro could perhaps be better for the Icelandic economy than its own independent currency, the króna. And of course there are those who insist that membership of the European Union and the euro are the solutions to everything, without being able to put forward any tenable arguments. The latter, however, only constitute a minority group. Most economic experts have concluded that having the euro as Iceland’s official currency would most likely be far less beneficial for Iceland’s economy than keeping the króna.
Earlier this year, in the course of this debate, there was also a short-lived discussion in Iceland that perhaps it might be possible to adopt the euro without first joining the EU itself. However, those discussions have now subsided after the EU confirmed previous statements by a number of leading experts in this field that this is not possible. Quite remarkably, both the Pro-EU movement in Iceland and Heimssýn, the no movement, agree on that. Even Iceland’s Pro-EU Prime Minister, Halldór Ásgrímsson, has said that suggesting this is possible only makes the EU debate in Iceland more complex.
Out of the question
The official policy of the Icelandic center-right government, a coalition of the centrist Progressive Party (Framsóknarflokkurinn) and the conservative Independence Party (Sjálfstæðisflokkurinn), is that EU membership is out of the question and so is adopting the euro – even if it were possible to adopt it without EU membership. However, Iceland has a pro-EU Prime Minister who also chairs the Progressive Party. Although PM Ásgrímsson has neither the backing of his government nor of his own party he nevertheless tries to speak as positive about the EU as he can. As a result his comments every now and then spark incorrect presumptions outside Iceland.
The Socialdemocratic Alliance (Samfylkingin) is the sole Icelandic political party in favour of entering membership negotiations with the EU. However, its leaders have said that Icelandic EU membership is not a realistic option as long as the Independence Party remains opposed. The Independence Party has about 42% of the votes according to latest polls and has furthermore traditionally been by far the largest party in Iceland for more than half a century.
The chairman of the Independence Party and Foreign Minister, Geir H. Haarde, said in an official visit to Sweden in February that he believes Iceland will not join the EU in the forseeable future. His comments were a response to Ásgrímsson’s earlier prediction that Iceland will have joined the bloc by 2015. Ásgrímsson’s sole argument for his prediction is his own assertion that by this time Sweden, Denmark and the UK will all have adopted the euro and Norway will have joined the EU!
During his visit to Sweden Haarde told journalists that he disagreed with the Prime Minister: “I do not share that point of view. Our policy is not to join in the foreseeable future. We are not even exploring membership.” In a speech at a conference at the University of Iceland on March 31, Haarde repeated what he has said on a number of previous occasions: that no particular Icelandic interests require membership of the EU. On a number of occasions Haarde has also explained in detail why it would not be in Iceland’s interest to adopt the euro.
Different economic requirements
In short, the economies of Iceland and the EU are very different in nature. Economic fluctuations in Iceland do not follow the same cycle as those in the major economies of the euro zone. The rate of the euro and the interest rate policy of the European Central Bank reflect conditions in the major economies of the euro zone and not conditions as they are in Iceland. The Icelandic economy is frequently in a different phase to the major EU countries and as a consequence Iceland has completely different requirements in economic management than the larger countries of the euro zone, not least when it comes to interest rates.
If Iceland was a member of the EU, and thus the euro zone, the interest rate in Iceland would almost inevitably be contrary to the requirements of our monetary policy. Iceland has experienced strong economic growth for many years and it has needed to respond to inflationary pressures in the economy by raising interest rates. It is indeed highly unlikely that economic growth for instance in Germany would be stymied in order to keep the spectre of inflation at bay in Iceland.
Far from Iceland adopting the euro or joining the EU, as some have obviously been speculating, it is more likely that Norway will join the EU and Sweden, Denmark and the UK will adopt the euro. None of this, however, is likely to happen in the forseeable future or ever at all.
(Previously published on the Brussels Journal aswell as on the EUobserver in a slightly different version)
5/01/2006
4/08/2006
From a speech by Foreign Minister Haarde at the University of Iceland March 31, 2006
When Iceland, back in the early 1990s, opted for the EEA as a long term basis for its relations with the Union, it was because EU membership presented serious problems. The single most important argument made against joining related to the Common Fisheries Policy. The disadvantages of membership were generally considered so obvious that the decision to stay outside the EU hardly caused any political controversy here at that time although membership in the EEA was a major bone of political contention back in 1992 and ‘93. So, by the way, was EFTA membership in 1970. Today the EEA is not a politically contested issue in this country. Membership in the EU is not and has never really been a serious issue in the political debate in Iceland. Some people seem to think, however, that it might be possible to put negotiations with the EU “to the test”, as it is frased, meaning that we should ask for membership negotiations just to see what the outcome might be. One assumption behind this way of thinking is that Iceland would be able to obtain permanent exemptions, in particular from the Common Fisheries Policy. This is simply not correct.
To begin with, the main principle in accession negotiations with the EU is that permanent exemptions are not granted from its policies. The basic rule of the Common Fisheries Policy is that major fisheries management decisions are made not by member countries but by EU institutions. Should Iceland join the EU, regulatory powers in the field of fisheries move irretrievably to Brussels. Even if the fisheries commissioner would be an Icelandic national he or she would be bound by the principles of the common policy.
This whole idea is obviously unacceptable to Iceland.
In membership negotiations with Iceland, the EU would most likely make demands for access to Icelandic waters for fishing vessels from Member States. The principle of freedom of establishment could easily lead to the so called “quota hopping” problem, which would give EU fishing companies access through the back door to Icelandic waters.
The problem is not merely that key decisions would be transferred to Brussels, nor that other EU countries’ fleets would enter our waters aided by the phenomenon of “quota hopping”. Just as important is the fact that the entire operating environment for fisheries within the EU is completely different from that in Iceland. In the EU, fisheries are largely regarded as a branch of regional development. Iceland, however, has no alternative but to operate its fisheries as a sustainable business sector.
A further consequence of membership would - due to a number of factors, including our standard of living and high national income - be that Icelanders would pay many billions of krónur more into the EU´s coffers than they would receive.
There are those who say that the Icelandic public would still gain as the price of food would go down should Iceland enter the EU. But we need not join for such purpose - and pay as a consequence huge amounts of money into EU funds - since we obviously have our own means, if we so choose, to reduce taxes, tariffs and other protective import restrictions on various agricultural products. That will in any case most probably happen through WTO arrangements.
It is also maintained that the admittedly high interest rates here would go down with membership of the EU and the Euro. There is, of course, no question that a small economy has to pay a certain price for keeping an independent currency. Interest rates have always been higher in Iceland than in most of the EU, for example. But Iceland has also experienced stronger economic growth than most EU countries, with very little unemployment.
If Iceland were a member of the eurozone, the interest rate here would almost inevitably be contrary to the requirements of our monetary policy. We have had strong economic growth for many years and we have needed to respond to inflationary pressures in the economy by raising interest rates. It is indeed unlikely, to say the least, that economic growth would be stymied in Germany, for instance, in order to keep the spectre of inflation at bay in Iceland.
Iceland´s exports of goods are not particularly diversified and are still dominated by fisheries products. This structural characteristic of our economy would make monetary union particularly risky. The exchange rate of the euro would obviously never be influenced by what might be happening in the Icelandic economy. It is, of course, too small for that.
We would face severe problems if, for example, our fisheries sector underwent a downswing at the same time as an economic upswing was taking place in the bigger countries in Europe. The euro would strengthen at the same time as the Icelandic economy was weakening and in need of a weaker, not stronger, currency. It is not difficult to imagine the consequences of such a scenario for us.
More problems would thus be created than solved. The challenge for us is to keep our own economic affairs in order rather than look for panaceas within the EU. If we succeed in that, economic stability will be ensured.
Source:
The Foreign Ministry
To begin with, the main principle in accession negotiations with the EU is that permanent exemptions are not granted from its policies. The basic rule of the Common Fisheries Policy is that major fisheries management decisions are made not by member countries but by EU institutions. Should Iceland join the EU, regulatory powers in the field of fisheries move irretrievably to Brussels. Even if the fisheries commissioner would be an Icelandic national he or she would be bound by the principles of the common policy.
This whole idea is obviously unacceptable to Iceland.
In membership negotiations with Iceland, the EU would most likely make demands for access to Icelandic waters for fishing vessels from Member States. The principle of freedom of establishment could easily lead to the so called “quota hopping” problem, which would give EU fishing companies access through the back door to Icelandic waters.
The problem is not merely that key decisions would be transferred to Brussels, nor that other EU countries’ fleets would enter our waters aided by the phenomenon of “quota hopping”. Just as important is the fact that the entire operating environment for fisheries within the EU is completely different from that in Iceland. In the EU, fisheries are largely regarded as a branch of regional development. Iceland, however, has no alternative but to operate its fisheries as a sustainable business sector.
A further consequence of membership would - due to a number of factors, including our standard of living and high national income - be that Icelanders would pay many billions of krónur more into the EU´s coffers than they would receive.
There are those who say that the Icelandic public would still gain as the price of food would go down should Iceland enter the EU. But we need not join for such purpose - and pay as a consequence huge amounts of money into EU funds - since we obviously have our own means, if we so choose, to reduce taxes, tariffs and other protective import restrictions on various agricultural products. That will in any case most probably happen through WTO arrangements.
It is also maintained that the admittedly high interest rates here would go down with membership of the EU and the Euro. There is, of course, no question that a small economy has to pay a certain price for keeping an independent currency. Interest rates have always been higher in Iceland than in most of the EU, for example. But Iceland has also experienced stronger economic growth than most EU countries, with very little unemployment.
If Iceland were a member of the eurozone, the interest rate here would almost inevitably be contrary to the requirements of our monetary policy. We have had strong economic growth for many years and we have needed to respond to inflationary pressures in the economy by raising interest rates. It is indeed unlikely, to say the least, that economic growth would be stymied in Germany, for instance, in order to keep the spectre of inflation at bay in Iceland.
Iceland´s exports of goods are not particularly diversified and are still dominated by fisheries products. This structural characteristic of our economy would make monetary union particularly risky. The exchange rate of the euro would obviously never be influenced by what might be happening in the Icelandic economy. It is, of course, too small for that.
We would face severe problems if, for example, our fisheries sector underwent a downswing at the same time as an economic upswing was taking place in the bigger countries in Europe. The euro would strengthen at the same time as the Icelandic economy was weakening and in need of a weaker, not stronger, currency. It is not difficult to imagine the consequences of such a scenario for us.
More problems would thus be created than solved. The challenge for us is to keep our own economic affairs in order rather than look for panaceas within the EU. If we succeed in that, economic stability will be ensured.
Source:
The Foreign Ministry
4/02/2006
From a speech by Foreign Minister Haarde in Berlin March 29, 2006
With respect to the EU and EFTA, I know it is of some curiosity here in Germany, whether Iceland has plans to join the European Union. We follow developments within the EU very closely after all the EU is by far our biggest trading partner, and some of our closest friends are members. We wish the EU well and want to see it succeed inits endeavours. Indeed, I would say that the EU is one of the major contributors to peace both in our region and world wide. However, there are no pressing reasons for Iceland to join the Union; indeed, there are certain matters, such as the EUs common fisheries policy, which would make joining very problematic.
The very different nature of our economies would also present major obstacles. Economic fluctuations in Iceland do not follow the same cycle as those in the major economies of the euro zone. Therate of the euro and the interest rate policy of the European Central Bank reflect conditions in the major economies of the euro zone and not conditions as they are in Iceland. The Icelandic economy is frequently in a different phase to the major EU countries. Thus Iceland has completely different requirements in economic management than the larger countries of the euro zone, not least in matters of interest rates.
Source:
The Foreign Ministry
The very different nature of our economies would also present major obstacles. Economic fluctuations in Iceland do not follow the same cycle as those in the major economies of the euro zone. Therate of the euro and the interest rate policy of the European Central Bank reflect conditions in the major economies of the euro zone and not conditions as they are in Iceland. The Icelandic economy is frequently in a different phase to the major EU countries. Thus Iceland has completely different requirements in economic management than the larger countries of the euro zone, not least in matters of interest rates.
Source:
The Foreign Ministry
2/21/2006
Majority against applying for EU membership in Iceland
According to a new public opinion poll in Iceland 42,3 percent of Icelanders are now opposed to applying for membership of the European Union (EU) while 34,3 percent are in favour. 23 percent had not made up their minds. The poll was produced on February 18 by the Icelandic newspaper Fréttablaðið with a sample of 800 people, and hence produced ten days after the Icelandic Prime Minister, Halldór Ásgrímsson, said in a speech at a commerce conference in Reykjavik that he predicted Iceland would have become a memberstate of the EU by 2015. The Icelandic people therefore don’t seem to agree with Mr Ásgrímsson. If only those, who said either their favoured EU membership application or were opposed to it, are taken into the picture 55 percent are opposed while 45% are in favour.
The question asked was: "Should Iceland apply for membership of the European Union?" 98,1 percent of the people in the sample participated. This is the first poll in Iceland on the attitute of Icelanders towards EU membership since August last year when according to a poll by Gallup 43 percent were in favour of joining the EU while 37 percent were opposed. This time, however, a different question was asked; that is whether to apply for EU membership but not just whether to join the Union.
Press articles:
Fréttablaðið
Morgunblaðið
EUobserver.com
The question asked was: "Should Iceland apply for membership of the European Union?" 98,1 percent of the people in the sample participated. This is the first poll in Iceland on the attitute of Icelanders towards EU membership since August last year when according to a poll by Gallup 43 percent were in favour of joining the EU while 37 percent were opposed. This time, however, a different question was asked; that is whether to apply for EU membership but not just whether to join the Union.
Press articles:
Fréttablaðið
Morgunblaðið
EUobserver.com
2/19/2006
Iceland won't join EU in the foreseeable future
Icelandic Foreign Minister Geir H. Haarde said last Monday that Iceland would not join the European Union in the foreseeable future. Prime Minister Halldór Ásgrimsson had commented earlier this month that he thought Iceland would join the bloc by 2015, but Mr Haarde disagrees. "I don't share that point of view," he told journalists after a meeting with his Swedish counterpart, Laila Freivalds. "Our policy is not to join in the foreseeable future. We are not even exploring membership," he said.
Haarde, who heads his country's Independence Party, said it was "normal" that he should have policy differences with Asgrimsson, who is head of the Progressive Party. Haarde, who served as finance minister before taking over the foreign affairs portfolio in September 2005, has argued that Iceland's economic profile did not make it desirable to join the EU, although the country is a member of the European Economic Area (EEA).
He argues that EEA membership already gives Iceland 90 percent of the benefits of joining the 25-nation European Union. Some three-quarters of Iceland's gross domestic product is based on fishing, but even the island's pro-EU politicians do not want to relinquish control over that sector to Brussels.
Neither would Iceland benefit from the EU's common agriculture policy, which provides lucrative farming subsidies, Haarde has argued. Ásgrimsson has said he is in favour of Icelandic EU membership if a solution could be found to allow the country to manage its fisheries itself.
Ásgrimsson's Progress Party is the country's third-largest party with 12 seats in parliament, while Haarde's Independence Party is the biggest party with 22, ahead of the Social Democratic Alliance with 20.
Press article:
EUbusiness
Haarde, who heads his country's Independence Party, said it was "normal" that he should have policy differences with Asgrimsson, who is head of the Progressive Party. Haarde, who served as finance minister before taking over the foreign affairs portfolio in September 2005, has argued that Iceland's economic profile did not make it desirable to join the EU, although the country is a member of the European Economic Area (EEA).
He argues that EEA membership already gives Iceland 90 percent of the benefits of joining the 25-nation European Union. Some three-quarters of Iceland's gross domestic product is based on fishing, but even the island's pro-EU politicians do not want to relinquish control over that sector to Brussels.
Neither would Iceland benefit from the EU's common agriculture policy, which provides lucrative farming subsidies, Haarde has argued. Ásgrimsson has said he is in favour of Icelandic EU membership if a solution could be found to allow the country to manage its fisheries itself.
Ásgrimsson's Progress Party is the country's third-largest party with 12 seats in parliament, while Haarde's Independence Party is the biggest party with 22, ahead of the Social Democratic Alliance with 20.
Press article:
EUbusiness
2/14/2006
Prime Minister Ásgrímsson as good as alone in his predictions
As expected almost no one in Iceland came out in support of the comments made by Halldór Ásgrímsson, the Icelandic Prime Minister, last week that he predicted Iceland would be a member of the European Union by 2015. On the contrary the comments were hevily critizised by people from all parts of the society not the least from a number of people in the government. As a consequence the discussions about Mr Ásgrímsson comments are over. After all everyone in Iceland knows he has no backing and that an Icelandic EU membership is highly unlike to ever taking place.
2/08/2006
Mr Ásgrímsson's wishful thinking
Halldór Ásgrímsson, the Icelandic Prime Minister, said today in a speech at a commerce conference hosted by the Icelandic Chamber of Commerce (ICC) that he believed Iceland will be a member of the EU by 2015. The conference's topic was Iceland in the year 2015. Mr Ásgrímsson said the most important factor in that regard will be the future and size of the eurozone. Therefore he said it is very important whether Denmark, Sweden and the UK decide to adopt the euro or not. He stressed, however, that Iceland was not on its way into the EU in the forseeable future. The debate in Iceland is not yet "mature enough" according to him and the necessary political circumstances are also missing.
Leaders of the conservative Independence Party, the coalition partner of Mr Ásgrímsson's Progressive Party, have today stressed that as before they do not agree with the Prime Minister on the EU. EU membership is as before not seen as a favourable option for Iceland. The chairman of the Independence Party and Foreign Minister, Geir H. Haarde, said to the Icelandic media that he did not see a reason to react whenever Mr Ásgrímsson expressed himself on EU issues. It was a known fact that the Independence Party disagreed with the Prime Minister on the EU.
In other words Mr Ásgrímsson speaking positively about the EU is nothing new since he is pro-EU himself. Meanwhile, not only his coalition partner in government disagrees with him, he also doesn't have the support of his own party which he admitted today. In other words he is free to believe what he wants according to his own wishful thinking, but it doesn't make it a fact. He simply hasn't got the necessary backing, far from it.
According to the last poll in Iceland on the following of the Icelandic political parties the Independence Party has 44,7% while the Progressive Party only has 9,6%.
Press article:
Morgunblaðið
Leaders of the conservative Independence Party, the coalition partner of Mr Ásgrímsson's Progressive Party, have today stressed that as before they do not agree with the Prime Minister on the EU. EU membership is as before not seen as a favourable option for Iceland. The chairman of the Independence Party and Foreign Minister, Geir H. Haarde, said to the Icelandic media that he did not see a reason to react whenever Mr Ásgrímsson expressed himself on EU issues. It was a known fact that the Independence Party disagreed with the Prime Minister on the EU.
In other words Mr Ásgrímsson speaking positively about the EU is nothing new since he is pro-EU himself. Meanwhile, not only his coalition partner in government disagrees with him, he also doesn't have the support of his own party which he admitted today. In other words he is free to believe what he wants according to his own wishful thinking, but it doesn't make it a fact. He simply hasn't got the necessary backing, far from it.
According to the last poll in Iceland on the following of the Icelandic political parties the Independence Party has 44,7% while the Progressive Party only has 9,6%.
Press article:
Morgunblaðið
1/20/2006
Better Out than In
Geir H. Haarde, the Icelandic Foreign Minister, met with his British colleague Jack Straw in London yesterday. During the meeting the two discussed the relationship between Iceland and the United Kingdom, the European Union and some other international issues. After the meeting Mr Haarde said it was especially interesting to hear that Mr Straw agreed with him that no special Icelandic interests required that Iceland join the EU. According to Mr Haarde, Mr Straw agreed that Icelanders were doing very well outside the EU. This is of course nothing new for Icelanders, but it is always nice to hear others confirm it. The funny thing is that the same Jack Straw on a number of occasions – before the French and the Dutch rejected the EU constitution – warned the British people not to reject the constitution because doing so would mean that Britain would become “isolated and weak in Europe.”
Are we to understand that different principles apply for Britain and Iceland? Of course not. Any country in Europe, or in the world, can do as well as Iceland and even better. But the EU is most definitely not the road to prosperity. Iceland is the wealthiest and most prosperous country in the world today after Norway. The reason for Iceland’s success is its independence, which has made it possible for the country to introduce radical economic reforms towards a liberalized economy, something which would never have been possible had the country been a member of the EU.
(Previously published in the Brussels Journal)
Are we to understand that different principles apply for Britain and Iceland? Of course not. Any country in Europe, or in the world, can do as well as Iceland and even better. But the EU is most definitely not the road to prosperity. Iceland is the wealthiest and most prosperous country in the world today after Norway. The reason for Iceland’s success is its independence, which has made it possible for the country to introduce radical economic reforms towards a liberalized economy, something which would never have been possible had the country been a member of the EU.
(Previously published in the Brussels Journal)
1/18/2006
Straw admits Iceland has no special interests in joining the EU
Geir H. Haarde, the Icelandic Foreign Minister, met with his British colleague Jack Straw in the Birtish Foreign Ministry today (January 18). During the meeting the two discussed the relationship between Iceland and the United Kingdom, the European Union and various other international issues. Haarde said after the meeting it was especially interesting to hear that Straw agreed with him that no special Icelandic interests demanded that Iceland joined the EU. Haarde said furthermore that Straw said Icelanders were doing very well outside the EU and it was no necessity for Iceland to join the Union. Besides all the cost and the burden membership would mean for the country.Well, this is of course nothing new for us in Iceland, but it's always nice to hear some top EU people confirm this :)
Source:
Morgunblaðið
1/04/2006
One more sign...
One more sign of how the European Union is so not an issue in Iceland and is actually always becoming more and more a none-issue here. As a tradition the chairmen of the Icelandic political parties represented in the Icelandic parliament, the Althing, each write a detailed article in the Icelandic newspaper Morgunblaðið on December 31 about the politics in Iceland in the last year. Only two of them so much as mentioned the EU. Geir H. Haarde, chairman of the Independence Party, only mentioned it once and then only in context with the WTO's Doha agenda. Ingibjörg Sólrún Gísladóttir, chairman of the Socialdemocratic Alliance (the only Icelandic political party in favour of joining the EU although it has never dared to put the issue on its agenda), however, mentioned it a few times mainly complaining that there was no political will in Iceland to join the EU. She even went as far as insisting that the EU was something that could not be mentioned in the country. Well, this is not really like that, but it is nevertheless true that the EU is not really the most popular thing among Icelanders ;)
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