Iceland's Economic Report Warns of Inflation Risks Ahead of EU Membership Vote

A report prepared for the Icelandic Employers' Association and the Icelandic‑European Trade Council warns that the Icelandic krona has proved ineffective at preserving value and that widespread use of inflation‑indexed contracts has created an automatic wage‑price spiral, pushing the country’s inflation higher. The analysis notes that loan interest rates for Icelandic firms are currently above 10 %, compared with 3.2‑5.6 % in the EU, and that over the past decade Icelandic borrowing costs have been 3‑6 % higher than in the euro area. It argues that adopting the euro would lower interest rates and reduce exchange‑rate risk.

The report, released ahead of the national referendum on 29 August, frames Iceland’s possible EU accession in the context of recent global shifts – US policy under former President Donald Trump, growing competition from China and Russia’s invasion of Ukraine – and cites EU goals to boost competitiveness through regulatory simplification and greater industrial autonomy. It highlights that Iceland already enjoys a special free‑trade agreement with China and that EU membership would simplify VAT and customs procedures, making e‑commerce more accessible to Icelandic consumers. The document ends by posing the central question of whether EU membership is in Iceland’s best interest.