Tags: Iceland | Europe | Crisis | Currency

Iceland Freezes EU Plans as New Government Shuns Euro Crisis

Wednesday, 22 May 2013 07:17 AM

Iceland’s new government is turning its back on the European Union and will shelve accession talks that started in 2010 as the nation seeks to protect its economic recovery from the debt crisis.

Sigmundur David Gunnlaugsson, who will take over as prime minister this week, has decided that a January decision to freeze EU membership talks will be extended indefinitely, his political adviser Johannes Thor Skulason said in a phone interview.

“Later in the term there will be a referendum on whether Iceland should continue the talks, although no date has been decided,” Skulason said.

The new coalition of Progressive and Independence parties, which ousted the Social Democrat-led government of Prime Minister Johanna Sigurdardottir in elections last month, is due to unveil its economic program. The decision by Gunnlaugsson, 38, to shelve EU talks means Iceland won’t target euro membership even after capital controls are lifted.

The appeal the EU once held to nations seeking economic stability and access to free trade is crumbling as the region fails to emerge from its debt crisis.

The U.K. is now openly questioning its allegiance with the EU while existing members like Denmark have distanced themselves from the goal of euro adoption to protect their economies. Iceland, which in 2008 became the first nation to succumb to the global financial crisis, now enjoys faster economic growth than the EU average.

Next Step

Iceland froze EU accession talks in January as parliament awaited the outcome of negotiations on a new government. Though the winners of April 27 elections say Iceland will survive better on its own, the central bank has argued the island should consider pursuing euro adoption as a possible next step after removing capital controls in place since 2008.

Since emerging from its 2008 banking meltdown, Iceland’s $14 billion economy has outpaced the euro zone’s and the government has tapped international debt markets twice. Unemployment in the Atlantic island is less than half the average in the euro area and credit derivatives show a smaller likelihood of default than in Italy and Spain, according to data compiled by Bloomberg.

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Iceland s new government is turning its back on the European Union and will shelve accession talks that started in 2010 as the nation seeks to protect its economic recovery from the debt crisis.Sigmundur David Gunnlaugsson, who will take over as prime minister this week,...
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Wednesday, 22 May 2013 07:17 AM
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