Euro adoption widened Iceland’s lead over Finland, article argues

In a submitted article published by mbl.is, Hilmar Þór Hilmarsson argues that Iceland has outperformed Finland economically since Finland adopted the euro, while security concerns have helped drive euro adoption in Finland and the Baltic states.

Finland is currently ranked as the world’s happiest nation, the article says. Its economy, however, has been marked by low growth, high unemployment and public debt equivalent to about 90% of gross domestic product, well above the European Union’s 60% debt limit. Recent figures show youth unemployment above 20%.

Finland joined the European Union alongside Sweden in 1995, while Norway, described in the article as the wealthiest Nordic country, rejected EU membership for a second time. Finland adopted the euro when it was introduced as a currency in 1999, although euro notes and coins did not enter circulation until 2002.

Between 1999 and 2025, GDP per capita in US dollars at constant prices and purchasing power parity rose by almost 26% in Finland, compared with more than 40% in Iceland. Average per-capita growth over the period was about 0.86% in Finland and 1.27% in Iceland.

At those growth rates, it would take more than 81 years to double GDP per capita in Finland, compared with 55 years in Iceland. In 1999, Finland’s euro adoption year, Iceland’s GDP per capita at purchasing power parity was 9% higher than Finland’s. By 2025, the difference had grown to about 22% in Iceland’s favour.

The article says the comparison shows Iceland performing better on this measure and the gap widening, with Finland falling behind. It does not claim that Finland’s EU and monetary union membership is solely responsible. Other factors also influence economic growth and employment, it says, but a national currency provides greater flexibility than a fixed exchange-rate policy. Countries outside a monetary union also have more freedom to use government finances to stimulate the economy during a downturn.

Iceland has often benefited from this flexibility, particularly during the 2008-09 financial collapse, the article says. Sweden and Finland had similar experiences during the serious financial crisis they faced in 1992-93.

EU membership, the euro and fear

The article says Finns have long lived in the shadow of the Soviet Union and Russia. Finland’s border with Russia is more than 1,300 kilometres long, which may partly explain why Finland has been the only Nordic country to adopt the euro. Many Finns may believe that, in these circumstances, it is better to be part of a larger bloc and a monetary union. They may also hope that an attack on Finland would trigger a response from larger EU countries that also use the euro.

All three Baltic states later followed Finland by joining the EU and adopting the euro. They all have borders with Russia: Estonia and Latvia have eastern borders, while Lithuania borders Kaliningrad, which is part of Russia.

Iceland, by contrast, lies in the middle of the North Atlantic. It has no contact with Russia, either through a land border or an exclusive economic zone, and is in a considerably less dangerous location than the Baltic states and the other Nordic countries on mainland Europe, the article says.

Some Icelandic decision-makers nevertheless appear not to understand this, it argues. In the view of some, EU membership, and naturally the euro, would help guarantee Iceland’s security.

Iceland is a key country for the defence of North America because of its location in the North Atlantic. Defence cooperation with the United States has largely worked well for decades. Although few soldiers are usually stationed at Keflavík Airport, infrastructure has been maintained and expanded so that readiness there can be increased at short notice if necessary.