“The krona is dead”

Posted on January 30, 2009 by Ian Betteridge

Iceland joining the EU:

"The krona is dead. We need a new currency. The only serious option is the euro," said a senior Icelandic official.

I wonder how long it will be before the government admits the same is true of the pound?

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  • Jake

    What a stupid comment – and obvious link fodder. If you can’t say anything sensible don’t say anything at all!

  • http://profile.typepad.com/ianbetteridge Ian Betteridge

    Thanks for the compelling argument as to why I’m wrong.
    Now, care to explain why the pound is so very different?
    The parallels are interesting. Both the UK and Iceland exploited non-membership of the euro to boost their financial sectors compared to the rest of Europe.
    I’m not just making this up: for years, one of the government’s key arguments against joining the euro was the importance of the financial sector. The argument was that we needed a government controlled lender of last resort (the Bank of England) to underwrite the finance sector, or they’d head off to somewhere else.
    In other words, unless the taxpayer was prepared to bail out the money men, they’d leave. Well, we’re now having to pay out on that risk – so those chickens have very much come home to roost.
    The Icelanders took the same kind of risk, on a much smaller scale. The result of this for Iceland is disaster. But the risks we took were much larger, and – unfortunately – whether or not we have the underlying economy to pay out on the guarantees we made has yet to be seen. We took a bet by staying outside the euro – and although we profited for a while (or at least, a small group of very rich individuals did), we ultimately lost the bet.
    The difference is purely one of degree: the international crisis has hit Iceland harder than the UK, so far. But this may not be true forever: the key question is whether the pound has hit its floor yet. If so, the pressure to join the euro will ease. If not… well, we could be in the same boat that Iceland is in.
    There’s an interesting parallel to be made, too, between Iceland and Ireland. Like Iceland, Ireland’s banking sector grow out of all proportion to the rest of its economy, largely by the same method: investing in UK property and companies.
    While Iceland has had to go begging to the IMF, Ireland’s membership of the euro has protected it from the worst excesses. While this is undoubtedly annoying to Germany and France (as it means they have to shoulder some of the burden of weaker or less-wise countries) it has prevented Ireland going bust – surely a good thing for Europe as a whole.
    So no, it’s not a stupid comment – there are a lot of reasons to believe that Iceland won’t be the last European country seeking the sanctuary of the eurozone. The question is whether the eurozone will want us.
    Will Nicolas Sarkozy be in the same position in 2009 or 2010 as Charles de Gaulle was in 1963: saying “non” to Britain joining a European club?

  • http://profile.typepad.com/ianbetteridge Ian Betteridge

    And, just in case you think I’m not being totally serious, here’s something
    from today’s Economist
    :
    “And as the New York Times has noted, some economists and traders have begun
    to refer to London by an ominous moniker: Reykjavik-on-Thames. Like the
    Icelandic capital, London is home to a stricken financial industry that once
    underpinned the economy, and to banks whose liabilities dwarf national
    output. As in Iceland the banks’ collapse has catalysed a new recession and
    rising unemployment, and may well contribute to the fall of a prime
    minister—even if Gordon Brown’s defenestration is likely to be more decorous
    than that of his ousted Icelandic counterpart.
    ‘Reykjavik-on-Thames’ exaggerates Britain’s predicament—probably. But it
    captures the way in which, at the moment, the country looks to some to be as
    much a victim of globalisation as its champion and beneficiary.”

  • http://www.bizarrepolitics.com/globalization-of-money-products Ray Tapajna

    The globalization of money came before the globalization of goods through so called free trade.
    Paper money has no money standard other than what the particular country or region represents. It takes alot of manipulation of values to add value to the paper. It is an intangible value. See http://www.bizarrepolitics.com/globalization-of-money-products – a view from the streets of USA.
    A major tangible value has suffer a severe deflation and it acted as a money standard too.
    That value is the value of workers and labor. President Roosevelt used that value to ramp up the most massive industrial might ever.
    See Lend Lease Act was real free trade and not chop liver as in globalist world at http://ezinearticles.com/?expert=Ray_Tapajna
    Only local value added economies work. Economies based on making money on money instead of making things are burning out. The value of money has been radically affected by the deflation of the value of workers and labor. Globalist free traders forget that consumers are workers too.
    See also http://tapsearch.com/flatworld/

  • http://reverttosaved.com Craig Grannell

    Having a fairly intimate knowledge of Iceland (my wife’s Icelandic, and I’ve visited plenty over the past seven years or so), I find this news—if true—rather depressing. EU membership won’t benefit Iceland all that much, and unless Iceland can get some kind of deal to opt-out of fishing-zone issues, EU membership could destroy what’s left of the country’s economy.

    It’ll be very interesting to see how the rest of EFTA responds, too. Surely if Iceland joins the EU, the anti-EU lobby in Norway will lose a lot of steam.

    As for Sterling, I suspect the resistance in the UK has much to do with independence and taxation. We (as in Brits) don’t like joining ‘clubs’ or being dictated to, and that’s what most will assume will happen (although Britain’s economic clout—even in these times—is such that it’ll likely be one of the driving forces in policy relating directly to the Euro if the UK joins). And then there’s the thorny issue of the fact the British economy’s always been at odds in terms of inflation and interest rates with the likes of Germany and France.

    Still, with Sterling tanking so spectacularly over the past few months, it’s increasingly difficult to argue against joining this particular club—at least if you’re British. I’d be significantly more cautious were I Icelandic.