People in favor of Iceland joining the EU should be honest and transparent that it's a pro inflation policy. In fact, Icelandic inflation would probably skyrocket.
Why?
Iceland's interest rate is 8.5% https://www.cb.is/other/key-interest-rate/
EU's interest rate is 3% https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...
The higher Icelandic rate is set for Icelanders by Icelanders in order to bring their 4.8% inflation rate down to the 2.5% target.
If Iceland adopted the EU's interest rate which is mainly set for France and Germany, that would be a 5% interest rate cut which is a massive stimulus. Icelandic inflation would skyrocket and there would be no chance of hitting the 2.5% target.
People should also look into Optimal Currency Area theory popularized by Paul Krugman eg https://archive.nytimes.com/krugman.blogs.nytimes.com/2012/0...
The US Dollar works because of massive fiscal transfers from states on the coasts to states in the interior. The US also allows whole areas to deindustrialize like Detroit in order to solve the unavailability of currency adjustments between states.
Are Icelanders willing to subsidize Greece? Are they willing to forgo their ability to devalue their currency like in 2008? Without devaluation that means deindustrialization.
For all the above reasons, Iceland joining the EU would be the stupidest and most economically illiterate decision in it's history.
Why?
Iceland's interest rate is 8.5% https://www.cb.is/other/key-interest-rate/
EU's interest rate is 3% https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...
The higher Icelandic rate is set for Icelanders by Icelanders in order to bring their 4.8% inflation rate down to the 2.5% target.
If Iceland adopted the EU's interest rate which is mainly set for France and Germany, that would be a 5% interest rate cut which is a massive stimulus. Icelandic inflation would skyrocket and there would be no chance of hitting the 2.5% target.
People should also look into Optimal Currency Area theory popularized by Paul Krugman eg https://archive.nytimes.com/krugman.blogs.nytimes.com/2012/0...
The US Dollar works because of massive fiscal transfers from states on the coasts to states in the interior. The US also allows whole areas to deindustrialize like Detroit in order to solve the unavailability of currency adjustments between states.
Are Icelanders willing to subsidize Greece? Are they willing to forgo their ability to devalue their currency like in 2008? Without devaluation that means deindustrialization.
For all the above reasons, Iceland joining the EU would be the stupidest and most economically illiterate decision in it's history.