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Euro not 'fail-proof' formula for success: Iceland

Euro zone membership is not a 'fail-proof' formula for economic success and the benefits for Iceland look less clear in the current debt crisis, Iceland's president said.

“The debate more than a year ago to apply for membership was that the global financial markets have developed in such a way that it was difficult to maintain a separate currency for a small nation,” President Olafur Grimsson said in an interview.

“But since then we have seen one euro country after another in serious difficulty. Most recently, what’s happening in Ireland. So the advantages of having a different currency look less clear now,” he said.

The eurozone has been shaken by a debt crisis first manifest in Greece and now gripping Ireland. The EU, and markets, fear a spread to other countries including Portugal and Spain.

Iceland, with a population of 320,000, applied to join the European Union over a year ago after its top banks collapsed under a weight of debt, sending its economy into a tailspin.

The crisis moved Iceland to seek the shelter of membership after decades of reluctance but Grimsson appeared sceptical about the safety the European Union could provide.

“The euro is not a fail-proof formula for economic success as Greece and Ireland and other countries are now experiencing,” he said.

Opposition

Greece became the first euro zone member in May to turn to its partners for help to avoid bankruptcy.

The debt-stricken country pledged new fiscal measures this week to comply with a 110 billion euro ($151 billion) bailout. International lenders said on Tuesday more help would be available if needed when the three-year rescue scheme expired.

The latest victim of the euro zone crisis, Ireland, will announce plans on Wednesday to cut welfare spending sharply and raise taxes to help tackle a catastrophic banking crisis and meet the terms of an international bailout.

The bloc’s persistent debt woes have hit its single currency, which has tumbled to a two-month low versus the dollar on Wednesday.

All of that had curbed the willingness of people to join the bloc, Grimsson said.

“The public opinion polls have demonstrated very clearly in recent months that the opposition towards EU membership has grown,” he said.

“People don’t think it (EU membership) is crucial. Whether it could have some benefits is a different matter,” he said.

Grimsson said any decision to join the European Union would ultimately be determined by the Icelandic people.

“The negotiations on fisheries, agriculture and national resources will be absolutely critical. What will be the attitude of Icelandic people will depend very strongly on what comes out of the negotitation process,” he said.

But he said devaluation of the Icelandic crown had helped the economy.

“The recovery of the economy has happened earlier and stronger than expected two years ago because the exports sector, fishing sector, agriculture and tourism have a stronger competitive advantage,” he said.

In October, three EU commissioners told Iceland that its mackerel fishing quotas had gone beyond sustainability limits after Iceland and the Faroe Islands unilaterally increased their quotas this year. ¨ûID:

Grimsson said Iceland had a long standing record of responsible fisheries. “The sustainability of fish stocks in Iceland demonstrates we have a record of wanting an agreement with all other countries,” he said.

“You can’t unilaterally decide on these things as some of the European countries seem to be arguing,” he said.