Iceland government can't agree on how to curb krona

The Icelandic currency is booming as a result of the island's spectacular recovery after the 2008 economic collapse, which forced authorities to nationalise three failing banks and impose capital controls.

Iceland government can't agree on how to curb krona

World Bulletin / News Desk

Iceland's government appeared to be in disagreement Monday over how to rein in the surging krona with Prime Minister Bjarni Benediktsson slapping down a suggestion by his finance minister that it could be pegged to the euro or pound sterling.

When these controls were lifted in March, analysts hoped the krona would depreciate.

Instead, a number of factors keep the currency at high levels, such as booming tourism, robust consumption and comparatively high interest rates, which are attracting investors. 

Iceland is basking in good times right now: alongside the explosion in tourism, the fisheries sector is thriving, and the economy grew by an impressive 7.2 percent in 2016, with 11 percent in the last quarter alone. 

The one dark cloud is its currency, the krona, which hit its highest level in almost a decade in early March.

"Is the status quo untenable? Yes. Everybody agrees on that. We'd like to have a policy that would stabilise the currency," Finance Minister Benedikt Johannesson told the Financial Times in an interview Monday. 

The Icelandic krona should therefore be pegged to a strong currency for advantages comparable to those of Denmark, which has long bound its kroner to Deutschemark and then to the euro, according to Johannesson. 

But Prime Minister Benediktsson subsequently told Bloomberg that he preferred to keep a variable exchange rate, which would allow Iceland to better adapt to crises. 

"The krona's role in the collapse and subsequent resurrection is undisputed," Benediktsson said. 

"The depreciation of the krona during the collapse led to our export industries being better equipped to lead the resurrection and made Iceland a more desirable tourist destination," he added. 

Johannesson and Benediktsson are cousins, but members of two different parties -- the centre-right and pro-EU Reform party and the conservative Independence party respectively -- in a coalition government. 

The rise in krona against the pound or the euro is of particular concern to the fishing sector, which exports almost three quarters of its products to Europe.

In one year, all foreign currencies have declined against the krona, with sterling falling by 22 percent, the Swedish krona by 16 percent and the euro by 15 percent. 

One euro is worth about 120.9 kronor at current prices.

Güncelleme Tarihi: 03 Nisan 2017, 17:51