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Examining All Options

DW staff (jg)October 13, 2008

A day before Iceland begins negotiations for an emergency multibillion loan from Russia, a senior minister and longstanding Europhobe has said the country must consider joining the European Union to save its economy.

A man walks past a branch of the Kaupthing bank in Reykjavik.
The credit crunch hit Iceland's banks hardImage: AP

Up to now, there has been a sizeable lobby in Iceland against joining the EU because of worries about the effects on its fishing industry.

Fisheries Minister Einar Gudfinnsson told Icelandic radio on Monday: "It's no secret, I've been against membership. However, the current turmoil means we have to look at every option."

A European Commission spokeswoman told Reuters news agency that she was not aware of Gudfinnsson's comments but said the EU's standard position remained that Iceland is a European country and thus entitled to apply for EU membership.

"Negotiation with Iceland, theoretically speaking, could go fast because as a member of the European Economic Area, it has already adopted many EU laws," a commission official said.

A nation facing bankruptcy

Three cod packed in ice
Iceland fears losing control over its fish stocksImage: AP

Iceland was forced over the past week to take over three big banks, shut down its stock market and abandon attempts to defend its free-falling currency. Trading in Icelandic shares had been due to start again on Monday, Sept. 13, but the exchange said it would now start on Tuesday.

Foreign Minister Ingibjorg Solrun Gisladottir, writing in Monday's edition of the Morgunbladid newspaper, said EU accession and the adoption of the euro now had to be a long-term ambition. Gisladottir, a member of the pro-EU Social Democrat party, also stressed the importance of working with the IMF.

"In the short term, our defence is cooperation with the International Monetary Fund and in the long term EU membership, adoption of the euro and backup from the European Central Bank," she wrote.

An approach to the IMF is likely

Iceland's Prime Minister Geir H. Haarde
It has been a nightmarish week for Iceland's Prime MinisterImage: AP

On Sunday, a top minister gave the strongest signal yet that Iceland might seek help from the International Monetary Fund after the country downplayed the idea last week. The issue is whether to ask the IMF for foreign currency to ensure the flow of imports and to help banks trade again.

"My conclusion is that if we appeal to the IMF, other central banks and other nations would follow that track," Industry Minister Ossur Skarphedinsson told the Morgunbladid newspaper in a report published on its website on Sunday.

Skarphedinsson said that would give Iceland the opportunity to rapidly rebuild its foreign exchange market, strengthen its currency and cut interest rates. On Friday, Prime Minister Geir Haarde said Iceland would not take the decision while the finance minister was in Washington for annual IMF meetings. The gathering ends on Monday.

Meanwhile also on Monday, a delegation of Icelandic central bank and finance ministry officials are leaving for Moscow with the hope of securing a loan of some four billion euros ($5.5 billion). This has caused disquiet in Europe with speculation about Moscow's motives and what price it may extract from Iceland, a NATO member.