The Icelandic nation faces a choice between the single European currency or ongoing currency exchange restrictions and a relapse to a much simpler means of trade with the outside world if it keeps the krona. This is the opinion of Arni Pall Arnason, Iceland’s Minister of Economics and Trade.
Shortly before Christmas, the Central Bank of Iceland handed the minister a report on the monetarism and currency issues outlook for Iceland. As the IMF is expected to leave the country next summer, that was one of the issues the report covered. The bank assesses the country’s options in its report and concludes that the only two realistic options are to join the EU, the EMU and the euro or to hold on to the krona. And in the short term, there is no real alternative to the krona.
Arnason wrote a column in today’s Frettabladid newspaper where he says that the second option (keeping the krona) would, in reality, mean a return to simpler trade and sustained exchange restrictions.
The trade minister days that the route the country took during the crash — to enact emergency laws and allow bank creditors to bear the brunt of the banks’ collapse — is enjoying growing credibility among other nations. The question now is how to insure the economic security of a small, open economy.
The minister believes that there are few opportunities for more job creation in the fishing sector, precisely because the Icelandic seafood industry is already so well managed. He added that it is also unlikely that a large number of new jobs will be created in the energy sector. He then goes on to call for suggestions, comments and a public discussion on the country’s finances.
The flexible rate of the krona and forced devaluations have certainly been a tool of economic management in the past; but those times are over, he said. It will take a decade to build up confidence in the krona now, and in the meantime, the currency will remain a hindrance to foreign investment and development.