Choice between euro, loonie puts Icelanders in a fix

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Photo - habermonitor.com

Iceland intends to ditch its battered krona in favour of the euro after joining the European Union or unilaterally adopt the Canadian dollar as “the situation can’t remain unchanged,” said Prime Minister Johanna Sigurdardottir.

“The choice is between surrendering the sovereignty of Iceland in monetary policy by unilaterally adopting the currency of another country or become a member of the EU,” Sigurdardottir said in a speech delivered at a Social Democrat Alliance party convention on Saturday in Reykjavik, the capital. The premier added that the EU membership will allow Iceland to “cooperate with EU countries as a sovereign nation, which has a say in the decision and policy making in all fields of cooperation.”

The North Atlantic island nation started talks over its accession into the EU in July 2010. Many observers believe the vote on entry into the EU will take place in early 2013. Brusseles has welcomed the Icelandic initiative and said the country has opened 11 and completed eight out of a total of 35 negotiating chapters for EU accession. Euro skeptics in Iceland are concerned about the country’s sovereignty over issues related to agriculture, environment and fisheries.

About a quarter of Icelandic voters support joining the bloc while an overwhelming 56.2% oppose the EU membership.

“Iceland could fix the krona’s exchange to the euro and be sheltered by the European Central Bank as early as by the middle of next election term” in 2015, said Sigurdardottir.

Loonie

Economists believe a few technical issues will make it difficult for Iceland to abandon the krona and adopting the Loonie (Canadian dollar).

Sigmundur Gunnlaugsson, the leader of the opposition Progressive Party, is pushing the idea. A known euro-skeptic, he urged the Iceland’s government, which is seeking to join the European Union and possibly adopt the euro, must have a serious debate about alternatives.

“It’s not like we are fighting for the adoption of the Canadian dollar,” he said. Polls already suggest that seven out of 10 Icelanders are in favour of dumping krona in favour of a more stable currency, but those rooting for the loonie and the euro are evenly matched.

The North Atlantic nation is in a fix as half of it sits on the North American tectonic plate pulling westward to adopt the loonie, while the other half on the Eurasian plate tilting towards east and aligning with the euro.

(Sources: Bloomberg, ChronicleHerald.ca)

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