Last week I heard a joke in London that asked "what's the difference between Ireland and Iceland? One letter and the EU." (Ireland has also experienced enormous credit related problems but has been propped up by the EU.) That's about to change as the EU is moving to absorb the crisis-hit country that is on the edge of financial ruin. It seems like only yesterday that the EU was berating countries for failing to trim budgets and meet the regulations set by the EU for the common currency but now, failing appears to be a prerequisite. In Euroland (and the US as well) the concern had previously been about Iceland falling into bankruptcy and being bailed out by Russia. Many feared the growing reach of the new Russia, chock full of petro-dollars, spreading its wealth and influence.
The failing Russian economy helped slow down that process and the West provided financial assistance. Now Iceland is on target to be the 29th country in the ever-expanding European Union. Looks like right wing economics is dead in yet another country.
The conservative government in Reykjavik, in power for 18 years, collapsed this week, the first government to fall as a result of the financial meltdown which has wrecked the Icelandic currency, the krona, wiped out savings and pensions, required a massive IMF bailout, sparked unprecedented riots in Reykjavik, and forced the formation of a caretaker centre-left government until new elections can be held, probably on 9 May.
EU membership will be a central theme of the election campaign, with the social democrats - the senior partner in the coalition interim government with the anti-EU Left Greens - pushing to join the EU and to swap the krona for the single European currency as soon as possible.
"The krona is dead. We need a new currency. The only serious option is the euro," said a senior Icelandic official.
The financial disaster in Iceland has triggered extreme volatility among voters. While there is support for joining the euro as a currency safe haven to protect Iceland from a battering by the markets, there is less enthusiasm for full EU membership, particularly among those in the vital fishing sector. This factor has fuelled talk of "unilateral euroisation", meaning that Iceland might join or use the single currency without being admitted to the EU. This is dismissed in Brussels as nonsense.
