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Euro support in Iceland hits five-year high

REYKJAVIK, Sept 11 (Reuters) - Support in Iceland for joining the European Union and adopting the euro currency is at its highest in five years, according to a new poll released on Tuesday.

According to the survey by Capacent Gallup for the Federations of Icelandic Industries (FII), 48 percent of Icelanders back joining the EU and 53 percent favour adopting the euro.

Recent volatility in the crown currency has given new life to the long-standing debate over EU membership and the bloc’s currency.

Some analysts and politicians have gone so far as to speculate about the possibility of joining the euro unilaterally.

Aspirants to the 13-nation euro club must meet strict inflation, debt and budget deficit criteria set out under the Maastricht Treaty.

The debate over whether to peg to or adopt the euro has been fuelled by recent wild swings in the crown as well as the advent in May of a more Europe-friendly coalition government.

“The conclusion of the poll is no surprise to me,” said University of Iceland political scientist Eirikur Bergmann. “Support for adopting the euro always strengthens when the (crown) is depreciating and fluctuating like now,” he added.

The crown has weakened more than 12 percent since a July slide sparked by global credit concerns.


Economist Jon Bjarki Bentsson at Glitnir Research said changes in the island nation’s business landscape have also made the euro a more attractive option.

“The Icelandic economy is getting more and more global and Icelandic companies are increasingly expanding their operations abroad,” Bentsson said.

Last week, Straumur-Burdaras STRB.IC, Iceland's biggest investment bank, and seafood firm Alfesca A.IC both announced their shares would be listed in euros instead of crowns.

The companies are among the several Icelandic firms that have shifted to the euro as their accounting currency.

Sigurdur Einarsson, chairman of Kaupthing KAUP.IC, Iceland's largest bank, said his bank would soon do the same.

“The (crown) has become too small for Kaupthing and for the Icelandic economy,” he told the Icelandic Financial News.

Still, central bank head David Oddsson said the euro would not guarantee economic health in a country that has struggled with rapid inflation and big imbalances in recent years.

“I find it hilarious to discuss the unilateral adoption of the euro as something realistic and giving the euro status as a solution to all our problems,” he told reporters last week.

Bentsson at Glitnir agreed that the euro was not a prescription for Iceland’s economic ills.

“Before discussing our options, we need to achieve stability in the economy and maintain it,” he said.

“Then we should turn to next task and assess whether the euro is what we need or not.”

He said regardless of the economic reasoning, any decision on euro adoption must be a political one.

The new coalition government, a union between the right-leaning Conservatives and the Social Democrats formed in May, is considered the most Europe-friendly government to take power in Iceland for decades.

Foreign Affairs Minister and Social Democratic party leader Ingibjorg Solrun Gisladottir is an avowed EU supporter.

Coalition partner the Conservatives Party, long leery of closer ties with Europe, is growing less sceptical under Prime Minister Geir Haarde, political scientists say.

“The key to any political development on this issue is the Conservative party,” Bergmann said. “The Conservatives are the biggest political force in Iceland and before they put their approval on applying for membership nothing will happen.”