Mounting debt in Greece, Italy and elsewhere in the EU are raising serious questions about the future of the single currency. Things look different in Iceland, after a grave banking crash in 2008 makes the tarnished euro still look like a shiny replacement for the volatile króna.
Reykjavik, Iceland When Gylfi Arnbjörnsson talks about the euro, his voice is tinged with longing. "What we need here in Iceland is a strong currency," says the president of the country’s biggest labor union. Just so there’s no misunderstanding about what that strong currency might be, he adds: “We need the euro.”
The Icelander, like most of his countrymen, is proud of his small island nation located in the middle of the Atlantic. Nonetheless, he would just as soon see the Icelandic króna buried under several meters of lava. "The króna is so volatile, that every year it reduces our income, and with it our standard of living, by a fourth,” he says.
Until 2007, Iceland was the fifth richest country in the world with a per capita gross domestic product higher than that of the United States by 60%. But things turned sour in the fall of 2008, when the island was devastated by the storm that enveloped financial markets worldwide. Within a week, the country’s three big banks -- Kaupthing, Glitnir and Landsbanki -- went bankrupt.
The currency lost a fourth of its value, inflation rose to 18%, and Iceland’s conservative government was torn apart. That was when, for the first time, a vague longing to give up their own currency manifested among many Icelanders, along with a growing desire to join the European Union (EU).
In 2009, the Icelandic parliament voted to apply for EU membership. Accession negotiations began last year. Chief negotiator Stefan Hankur Johannsson said the application process could be completed by 2013, adding: “We’re on the right path.”
However, with the possibility of Iceland joining the EU by 2016 at the latest, he did not wish to comment on whether or not its people would still want to by that time. For that to happen there would first have to be an agreement on farm subsidies, fiscal policy and regional grants. The biggest challenge, both politically and economically, is the fishing industry, about which Iceland would prefer that the EU have no say. Iceland's livelihood depends on fishing -- and from the exclusion of its competitors.
The latest polls indicate that Icelanders are divided on the issue. Nearly 60% say they know too little about the EU and its institutions, while two-thirds of the population favors completing negotiations and afterwards voting yes or no in a referendum.
Out of the abyss
Pall Vilhjalmsson, and the group of some 5,500 Icelanders that he spearheads, have a single goal: "to keep Iceland out of the European Union”. They want negotiations for EU Membership to stop. When Iceland belonged to Denmark over 100 years ago it went through “bad experiences,” says Vilhjalmsson, who finds it hard to believe that this country, which only became a republic in 1944, would be prepared to subjugate itself again to “foreign powers.”
That Iceland, left to its own devices, has fallen into an abyss doesn’t interest him. Nor does the fact that it is still severely weakened because of the 2008 financial crisis. Inflation is currently at 5%, and climbing. Not too long ago, the country had virtually no unemployment or government debt. Iceland now has to shoulder a 7% unemployment rate and debts amounting to 100% of GDP. Well-educated people are leaving the island. Investment is at a historic low. The banks have been severely weakened. The export of capital is strictly forbidden.
Finance Minister Steingrimur J. Sigfusson is trying to stay optimistic. In July, for the first time since 2006, Iceland issued a bond and successfully raised 1 billion euros. "Things are looking up," says the Left-Green politician, whose party has been a junior partner of the ruling Social Democratic Alliance since the 2009 elections.
“Unlike Ireland or Greece, Reykjavik decided not to rescue the three big banks in 2008," says Sigfusson. "That wasn’t a wise, free decision; its hands were tied, the liabilities were 10 times the GPD. We never could have paid that."
After passing an emergency law, the three banks were morphed into a business bank and a “bad bank.” The government took majority shares in two banks and a minority stake in another. It is presently in legal disputes with the UK and the Netherlands, with both countries seeking repayment of deposits made in the old banks by their citizens, individual account holders and big investors alike. Iceland only wants to repay individual depositors, and the matter is now before an international court.
Arnbjörnsson is hardly alone in pining for the euro. His union represents 100,000 workers in the public and private sectors, which is about a third of Iceland’s entire population.
Recently, though, he’s been having some doubts. In two referenda, Icelandic citizens voted against compensating the British and the Dutch, despite Iceland’s legal obligations. "Imagine what would happen if, as members of the EU, we had to vote on paying for the Greeks," says Arnbjörnsson.
Read the original article in German
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