A Viking union?

While Iceland is debating whether applying for EU membership is really the best option to rescue its crisis-hit economy, there is another option on the table growing in popularity: monetary union with Norway.

None other than Iceland's new finance minister, Steingúrmur Sigfússon, is considering the idea of using the Norwegian crown as the country's currency – a move that would have been unthinkable only a few months ago.

Asked by the Norwegian daily Klassekampen on Friday whether this was a serious option, Sigfússon answered: "We hope so. It will be natural to talk about it when we celebrate our party's 10-year anniversary [this week]. Nordic socialist party leaders are invited and I hope of course that Kristin [Halvorsen, the Norwegian finance minister] will come."

Sigfússon is the leader of the Left-Greens, the most popular political party in Iceland today, while Halvorsen leads the Socialist Left party in Norway, the sister-party of Sigfússon's.
"A strong and deceptive belief in adopting the euro has emerged [in Iceland] even though Iceland is just as far away from complying with euro criteria as poor countries in eastern Europe," continued Sigfússon, whose party is strongly opposed to EU membership. "So we think that the possibilities of currency co-operation with the Nordic countries, preferably Norway, must be thoroughly investigated."

And Norway is not saying "nei" either. "I look forward to discussing various aspects of the economic situation in Iceland with finance minister Steingrimur Sigfússon," Halvorsen told Reuters today, "also currency co-operation if that becomes a subject."

The idea of a monetary union between Iceland and Norway is not as crazy as it sounds, as the two nations have been co-operating for years. Since 2006, when US forces pulled out of Keflavik base, Iceland's national defence has been provided by Norway, as Iceland does not have armed forces of its own.

Norwegians have also been quick to ride to the rescue of their Icelandic cousins during the economic crisis. In May the Norwegian central bank said it would lend Iceland €1.5bn to prop up its economy, together with the central banks of Sweden and Denmark.

And in November, Norway again gave a lending hand to Iceland with €500m in aid as part of an IMF-led $10bn package.

The two states are culturally close, with Iceland originally populated by Vikings who left Norway more than 1,000 years ago. They also have shared strategic interests, such as control of their fisheries, which they are loth to surrender. Both have interests in the strategic Arctic region.
But not everyone is thrilled at the prospect of an Icelandic-Norwegian union, with Oslo-based economists warning that it is unrealistic. Oystein Doerum, chief economist at Norway's largest bank DnB NOR, told Reuters that the idea sounded "absurd" and would most likely be opposed by Norway's prime minister, Jens Stoltenberg, and Norway's central bank.

And as Eirikur Bergmann suggests, the lure of the euro could be such that the only viable option for Iceland really is to join the EU. So it remains to be seen whether there will be a new Viking union in Europe.