Could EU Application Save Billions for Iceland? Skip to content

Could EU Application Save Billions for Iceland?

According to a new report, undertaken by Minister for Foreign Affairs Össur Skarphédinsson, an application for European Union membership could save tens of billions in ISK for the Icelandic state treasury in the form of better credit terms.

“Not to mention the stability and credibility in the eyes of other nations, which Iceland’s application for EU membership would bring,” the report states. Skarphédinsson presented his report to the Althingi parliament as part of discussions on foreign affairs and international matters, Fréttabladid reports.

The European Central Bank in Frankfurt, Germany. Copyright: Icelandic Photo Agency.

The Ministry of Finance’s recent abstract on the national economy and state finances estimates that by the end of this year, the state treasury will carry interest-bearing liabilities of approximately ISK 2,300 billion (USD 19 billion, EUR 14 billion).

If these interest rates drop by only one percent, ISK 23 billion (USD 194 million, EUR 143 million) could be saved. However, according to Fréttabladid’s sources, it is difficult to estimate how much Iceland’s credit terms would improve with an application to the EU.

The credit terms, for example in the UK through the Icesave obligations, depend on the credibility of Iceland’s economic policy. The interest rates that have been discussed range from five to six percent. In comparison, Hungary has been offered loans with an interest rate of 3.5 percent.

The report also discusses Iceland’s future currency and the three options that have been mentioned: keeping the Icelandic króna, adopting the euro without EU membership or adopting the euro through EU membership.

The report argues against the first two options and recommends the third, since it would call for some strict measures before the euro could be adopted: tight control over state finances and stability in currency matters that would have to fulfill the terms of the Maastricht Treaty.

“It can be assumed that that procedure would take at least five years from the point when membership to the union is applied for,” the report concludes.

The nation’s attitude towards EU membership remains almost unchanged since February. According to a new Fréttabladid opinion poll, 46.6 percent of respondents support membership application while 53.4 percent are against applying.

Click here to read more about Iceland and the EU.

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