The euro zone may be suffering from a severe debt crisis that threatens to unravel the currency union, but at least one outsider still wants to join the 17-country club.
That would be tiny Iceland, which barely survived a crushing financial crisis in 2008 that blew up its banking system, nearly wiped out the economy and flattened its independent currency, the krona.
For all the European Union’s current woes, some countries are still eager to get open access to one of the world’s biggest and most lucrative markets, analysts say.
And the euro itself will still hold allure, provided it survives the crisis.
“There are a couple of benefits from joining the euro, even now,” said Carsten Brzeski, senior economist with ING Bank in Brussels. “Remember that two years ago there was a saying that the only difference between Ireland and Iceland was not the ‘c’ or the ‘r’ but only the ‘€’. The euro saved Ireland from going bust like Iceland.”
Today, Iceland is on the road to recovery, with a growing economy and declining unemployment – aided in no small measure by a weak krona, the imposition of capital controls and a decision to allow its failed banks to go under in 2008, something the still-struggling Ireland did not do.
Yet Iceland’s recently appointed Finance Minister, Oddny Hardardottir, says one of her goals is to adopt the euro and get rid of the less-than-resilient krona.
“I’m not concerned about the future of the euro,” declared Ms. Hardardottir, a centre-left politician who was handed the finance portfolio in a cabinet shuffle three weeks ago. (One ousted cabinet member said his downfall stemmed from his staunch opposition to joining the European Union.)
“The demand is that countries become more disciplined in their economic management,” Ms. Hardardottir, a former school teacher, told Bloomberg. “That’s something that we should also take to heart, although we’ve shown great effort and performance in that regard following the economic collapse.”
As for other countries’ EU aspirations, Croatians voted overwhelmingly in favour of joining the bloc in a referendum Sunday. As a result, the country is set to become the 28th member in July, 2013. Close to a dozen other countries, including Turkey, Ukraine and Serbia, have expressed a desire to get into the club.
But Iceland, which launched negotiations to enter the EU in 2010, “is probably the most explicit about [joining]the euro,” said Nicolas Véron, a senior fellow at Bruegel, a Brussels-based think tank.
Other countries in central and eastern Europe, including members of the EU, “are basically in a holding pattern,” waiting for the euro crisis to end before pursuing entry to the currency union, Mr. Véron said. “That objective remains, as soon as the crisis is resolved … if it is.”
For Iceland, a couple of key stumbling blocks stand in the way of membership: A long-standing dispute over the country’s tight control of its vital fisheries sector and a more recent battle over €4-billion ($5.2-billion Canadian) in lost Icesave deposits owed to the British and Dutch governments.
The governments bailed out several hundred thousand of their citizens who had deposited the money in Internet savings accounts at high interest rates offered by Iceland’s largest bank, Landsbanki. The bank collapsed in 2008, leaving foreign customers out in the cold. The battle over reimbursement is expected to be a protracted one ultimately decided by the courts.
“With the euro, Icelandic banks could get ECB support, and the government could get funding [from the emergency bailout facilities]” Mr. Brzeski said. “Moreover, with the euro zone being Iceland’s biggest trading partner, the euro would also bring stability.”
But Iceland’s desires may not suit the currency union’s changed outlook on expansion.
“For the euro-zone countries, it would be wiser to keep the current club exclusive,” Mr. Brzeski said. “The Greek example clearly shows the difficulties the entire monetary union can face if only one small member runs into trouble.”
Editor's Note: Clarification: Romania, a member of the European Union, plans to join the euro zone. A paragraph in an earlier version of this article was unclear.