Hildur attacks government over rate rise and euro debate

Hildur Sverrisdóttir, an Independence Party politician, has strongly criticised government supporters after the Central Bank of Iceland raised interest rates, accusing them of using the increase to argue for EU membership and adoption of the euro, mbl.is reports.

In a social media post, Hildur said it was strange to witness what she called the government’s “poorly concealed joy” over the rate rise. She said the government had failed to get the economy under control and that its supporters were now trying to blame the Icelandic krona for the situation.

“The euro does not lower inflation and interest rates. We ourselves need to have achieved economic balance before adopting the euro,” Hildur wrote.

Euro is not the solution

Hildur said countries must meet economic conditions before adopting the euro. She therefore rejected the idea of presenting the currency as a solution to Iceland’s current inflation and interest rate problems.

She also said a fixed exchange rate could have particular disadvantages for a resource-driven economy such as Iceland’s. In such circumstances, she said, adjustments to economic fluctuations could instead appear as unemployment when the exchange rate could not absorb part of the swings.

Hildur also questioned whether lower interest rates alone would improve households’ financial position. Lower rates could, among other things, push up property prices, she said. She added that there was no evidence that people generally found it easier to buy homes in EU countries or could purchase more food with their wages than people in Iceland.

“In my sincere view, the euro is far from being the solution in our unique Icelandic circumstances, as people have been told incessantly,” she said.

Trend had been reversed

Hildur said the government had primarily been elected to bring inflation and interest rates under control. Inflation had been declining and a cycle of rate cuts had begun when the current government took office, she said, but that trend had since been reversed.

She said government decisions, including tax increases, had contributed to the reversal and referred to the Central Bank’s reasoning for raising rates.

She also recalled that inflation had been around or below the Central Bank’s target from 2014 to 2020. In her view, this showed that price stability could be maintained with the Icelandic krona.

Hildur said the economic consequences of the pandemic, the war in Ukraine and natural disasters in Grindavík had required extensive government measures. Those measures had been costly and had fuelled inflation, she said, but the trend had been brought back in the right direction before the change of government.

Currency does not set rates or prices

Hildur rejected the idea that the currency itself was the cause of Iceland’s economic problems.

“Currencies, whether they are the Swedish or Icelandic krona, the franc or the euro, have no independent will but merely reflect the conditions in the region,” she wrote.

She also stressed that possible EU accession negotiations would not concern agreements on interest rates, inflation or prices. Nothing on those issues would be negotiated in accession talks, she said.

Iceland therefore needed to get its economy under control regardless of whether the country later joined the European Union.

“The task belongs solely to us and to those we elect to govern the country,” she said.