Friday, 30 January 2009

Iceland and the EU....and the euro

This story about Iceland maybe applying to join the euro is rather interesting. Even, perhaps, joining the EU itself....although most people seem to think that you have to join the EU to join the euro.

Olli Rehn, the European commissioner in charge of enlargement, said: "The EU prefers two countries joining at the same time rather than individually. If Iceland applies shortly and the negotiations are rapid, Croatia and Iceland could join the EU in parallel. On Iceland, I hope I will be busier. It is one of the oldest democracies in the world and its strategic and economic positions would be an asset to the EU."

That actually sounds very much like the Commissioner floating an idea rather than an actual plan happening. The big problem for Iceland is of course that joining the EU would mean joining the most disastrous of all fishing regimes in the world, the Common Fisheries Policy. As, indeed, people are noting.

While there is support for joining the euro as a currency safe haven to protect Iceland from a battering by the markets, there is less enthusiasm for full EU membership, particularly among those in the vital fishing sector.

There are those therefore suggesting something very different indeed. Adopting the euro but not joining the European Union.

This factor has fuelled talk of "unilateral euroisation", meaning that Iceland might join or use the single currency without being admitted to the EU. This is dismissed in Brussels as nonsense.

I do have to wonder though why people are dismissing this as nonsense. Joining the euro might not be sensible, but it's certainly entirely possible. There's absolutely nothing at all that Brussels or anyone else could do to stop Iceland simply declaring that the euro was the only legal tender on the island.

Anyone with an ounce of knowledge of how monetary systems work would know that it's not in fact very difficult to do. After all, Panama does not have its own currency and hasn't for decades. They use the US $. Ecuador abolished their own currency and moved to the US $ in the 1990s (I think that date is correct). I lived and worked in Russia when there were two currencies, the rouble and the dollar.

As I say, this might or might not be a sensible idea, but it's most certainly not nonsense.

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