I have been to a few radio and television interviews where people are supposed to discuss events and debate their opinions.
Usually I have found people respecting of each others time to state their case and willingness to listen.
Yesterday was the first time though where I have been where the EU membership was one of the topics.
And I understand the nature of the debate so much more now.
Amongst the participants, the chairwoman of Young People Against EU Membership.
First she praised the krona on the same grounds as Steingrimur J. Sigfusson did last week.
When I explained how the fall of the krona destroys assets and home equity she picked up her cell phone to text someone apparently more important.
Then she said that we could so easily adopt the Euro without EU membership.
From then European Bank for Reconstruction and Development Chief Economist Willem Buiter’s 2001 report “Er Ísland Hagkvæmt Myntsvæði?” :
When all things are considered, economic reasons recommend an entry into the European Monetary Union, but not with a one-sided approach. But as Iceland is not a member of the EU, political reasoning goes totally against pretty much any monetary union. Without participation in the EU, it is not politically convincing to endorse parts of Iceland’s sovereignty to the European Central Bank. The institutions who could ensure the liabilities of the Central Bank towards Iceland do not exist and therefore it is unlikely that Iceland would take up the Euro without entering the European Union. Such a move would just simply not be feasible in the long term.
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Vilhjalm A.
1 year ago
It’s amazing how so many people in Iceland can maintain stupid ideas even in the face of explicit contradictory evidence.
Iceland cannot adopt the Euro because the EU/EU Central Bank won’t allow it. They have stated that explicitly.
I suppose Iceland can accumulate Euros (eg from aluminum and fish) and use them alonside ISK, but this is not the same as adopting the Euro. Adopting the Euro means that the EU Central Bank essentially buys all existing ISK (at a rate to be determined), or gives free Euros to be used in the place of the ISK. In other words the entire money supply becomes denominated in Euros. The EU Central Bank would then create credit lines with the Icelandic Central Bank (if it still exists) to bail out Iceland if necessary. The EU Central Bank would essentially get monetary / fiscal sovereignity over Iceland, since, as we have seen in Greece, the EU will not give bailout loans with internal fiscal reform.
This is the whole point of adopting the Euro — you get real money in exchange for fiat money, just like the East Germans got real Deutschmarks in exchange for their fake DDR marks. If Iceland doesn’t want the EU telling them what to do, that’s too bad – that’s the price of getting 30-50 billion Euros in free money.
If Iceland simply wants a hard currency to use for foreign trade or as a supplement, it could adopt the dollar. The American government allows this and it has been adopted in Panama and a few other places. But the Americans are not going to give Iceland free dollars in exchange for ISK, or back up the Icelandic Central Bank.
How about some other stupid ideas held by many/most Icelanders:
- Iceland can and will prevail on Icesave if only they get a neutral court to hear the case
- The Lindal argument (that only the Icelandic TIF is liable) is likely to prevail
- The moral argument that the Landsbanki debt was run up by kleptocrats will ultimately force the UK/NL to back down
- Iceland is special and deserves exceptions to the normal way of running things
- Iceland can repudiate the Icesave debt but is still morally entitled to foreign loans
- Iceland’s debt, as a proportion of VLF, is manageable
- Having the ISK instead of the Euro has many advantages
- Scandinavians will ultimately take the side of Iceland, in Icesave and/or EU entry
- Norway is their friend. Norway can and should provide loans and/or currency because Norway is rich.
- The EU will give Iceland an exception to its common fishing policies
- There is more than enough untapped, cheap energy in Iceland to make the country prosperous again
- The UK/Nl and the Europeans want to take over Iceland’s resources for themselves
- UK caused the downfall of Iceland through its Terrorist Law freezing the Icelandic banks’ assets
- If some Icelanders default on their loans and go bankrupt, that’s their problem and won’t affect the economy very much
- the ISK would not suffer much if currency controls are lifted
- the ISK will remain stable and the country does not need foreign loans
- the Scandinavians will gladly help out a Sjalfstaedisflokkur government
- the Emergency Laws will be upheld by EFTA and the EU
And so on …
To be fair to Icelanders, many other countries also have their own special delusions. For instance the Germans find it inconceivable that the Euro system will fail in the future, while most Americans fail to understand that their massive debt will ultimately cause the economy to collapse.
Blubber
1 year ago
Vilhjalm A.
Exactly.
Of course people have delusions, no matter what nationality.
But if you had asked me 18 months ago I could have never imagined the level of denial in the face of facts that Iceland has reached.
It makes 2007 seem like a year of logical and intelligent business practice.
JP
1 year ago
Euro as a currency will show their worth (or worthlessness) when we see how Spain will solve its problems.
Everybody is talking about Greece, but it is Spain that is most hit by the ‘euro-pean’ crisis and Spain has really deeply damaged economy now – unemployment 19% , unemployment among young people – 43%.
Iceland with its figures still seems to be an employment paradise.
And why don´t you say straight, that ISK was greatly overvalued, so do the salaries, housing market, many retail prices and so on?
Now it comes to something close to a real value. And it is among European average. Does it hurt to be only average, and no longer excellent ?
Iceland never be as productive as Germany, but it still has a lot of advantages and opportunities, even with its corrupted elite at the controls.
BTW, Zimbabwe adopted US dollar
Dadi
1 year ago
JP, the unemployment factor is the biggest Euro scare of course.
But there are some who maintain that for such a nation like Iceland with a small population with relatively well-educated work-force and natural resources, this would not be as big of a problem as it is in larger countries like Spain where spreading the available wealth is a bigger problem.
I for one don’t think that the unemployment in Iceland is a problem of lack of wealth but more of a problem of how it is distributed.
Dadi
1 year ago
To explain further, there is currently an abundance of kronas sitting in the Icelandic banks that don’t want to go to work in the economy.
So capital owners are sitting pretty on the high interest rates the krona is asking the Central Bank for. The capital owners were rescued by the government and they are benefiting from the price-indexation + interest rates by keeping them in the banks. There they are contributing to a slower economy, less investment and fewer jobs.
If these were Euros they might be less hesitant to go to work.
Boggi
1 year ago
Dadi Said:
“well-educated work-force and natural resources”
In my opinion this is just something that Vilhjalm A. forgot to put in his list of:”some other stupid ideas held by many/most Icelanders:”
Unless you mean people knowing who to read and write, but beyond than we are scrued in the education area. so yes, one more stupid idea held by many/most Icelanders:
Iceland has a well-educated work-force and natural resources.(if by resourse”s” you mean 2)
Andrew
1 year ago
I’m glad that Vilhjalm A. came up with that list. A foreigner doing the same thing would have been crucified!
I would say that you do have a natural resource advantage in geothermal energy, which could be developed further. Technical improvements in power transmission over very long distances should eventually allow you to be a net exporter. You need to do this to offset importing oil to power your vehicles and fishing fleet. It’s a long term thing though.
This business of preferring to look at text messages and answer your mobile phone whilst in face to face meetings is becoming very common. I find it very irritating, not to say rude.
Lino
1 year ago
Vilhjalm A,
another excellent post (I’m not him under alias…)
Another idiocy is getting in the EU just to get the Euro… ludicrous!
>If Iceland doesn’t want the EU telling them what to do, that’s too bad – that’s the price of getting 30-50 billion Euros in free money
sorry but, there’s no free money: an hypothetical new member of Eurozone would only get the amount of Euro its economy/currency would be worthy of: in case of Iceland it would be much much much less than 30-50 billion, not even Luxemburg could “print” such amount of currency.
Anyway it’s completely useless even to contemplate: first adhere to the EU: IF they let you in, second be eligible: Iceland won’t be for at least 25-50 year, Iceland would have to meet the main “theoretical” tests for eligibilty (3% max deficit, 60% debt/GDP max). You wish, EU might as well accept Mugabe’s Zimbabwe in Eurozone.
Having said that, Iceland could “adopt” any currency they “wish”, scrap ISK since anyway it’s going to be as worthy as Monopoly money, more and more fictional in value like the Reichsmark in the 20s: those icelanders who could will trade/hold Euro, dollars, yen, possibly outside Iceland, the ISK being for the suckers left holding the bag who could not do otherwise.
Macedonia “has” the Euro. Kosovo “has” the Euro. Iceland could “have” the euro overnight, without even having permission from EU/ECB.
Or revert to barter…
Lino
1 year ago
JP,
>Euro as a currency will show their worth (or worthlessness) when we see how Spain will solve its problems
if Spain will, in terms of capacity AND will to do so: the same problem with Greece (or Iceland…) some government would prefer to default instead of paying the price and to hell everybody else that has to come to help… IF they will come.
You are right in that Greece could default and few would lose sleep, megalomaniac politicians excepted, Greece econonomy is relatively paltry.
Now Spain defaulting, that could really trigger the end of the Euro: Spain IS big… imagine a nightmare scenario of multiple compounded defaulting inside Eurozone involving more than two countries…
Dadi
1 year ago
“Without participation in the United States, it is not politically convincing to endorse parts of Iceland’s sovereignty to the Federal Reserve. The institutions who could ensure the liabilities of the Fed towards Iceland do not exist and therefore it is unlikely that Iceland would take up the US Dollar without entering the United States. Such a move would just simply not be feasible in the long term.”
I just wanted to see what would happen if I substituted the words EU and Euro in the text from William Buiter. To unilaterally adopt a currency always leaves you with the problem of lack of a lender of last resort and total surrender of monetary sovereignty to a foreign entity.
Lino
1 year ago
Iceland has already a lender of last resort: the IMF.
Of course IMF’s money is not free, there are conditions attached: losing your fiscal as well as monetary sovereignty, whatever they are worth.
And IMF supply is limited only to a multiplier of a country’s contribution.