Richard Werner: Why EU Membership Would Be a Grave Mistake for Iceland | S04E53

Professor Richard Werner warns Icelanders against surrendering their monetary sovereignty by joining the European Union and eventually adopting the euro.In this wide-ranging interview, recorded ahead of Iceland’s referendum on reopening EU accession negotiations, Werner argues that joining the euro would be one of the worst economic decisions Iceland could make. By abandoning the Icelandic króna, he says, the country would give up control over monetary policy, lose its ability to respond independently to future crises and place crucial economic decisions in the hands of the European Central Bank.Werner also discusses the ECB’s plans for a digital euro. He describes central bank digital currency as a powerful instrument of centralised control that could eventually allow the ECB to deal directly with the public, undermine commercial and community banks and radically transform the European financial system.But Werner does not defend Iceland’s current economic policies. He strongly criticises the Central Bank of Iceland for relying on interest-rate increases while failing to control the quantity and allocation of bank credit. In his view, inflation, high mortgage rates and economic instability are not unavoidable consequences of having a small independent currency—they are the result of poor monetary and banking policies.He proposes a fundamentally different path for Iceland: retain the króna, make the Central Bank meaningfully accountable, encourage the creation of numerous small local and community banks, and direct newly created bank credit towards productive business investment rather than consumption, property speculation and financial assets.Werner also addresses Iceland’s unusual system of inflation-indexed mortgages and argues that indexation treats the symptoms rather than the underlying disease. If Iceland tackles inflation at its source, he says, the country could gradually eliminate the need for indexation while achieving lower interest rates, stronger economic growth, a more stable currency and greater prosperity.Topics discussed include:• Why Werner believes Iceland should reject EU membership• What Iceland would surrender by adopting the euro• The ECB’s record on inflation, asset bubbles and banking crises• The digital euro and the future of central bank digital currencies• What the Central Bank of Iceland is doing wrong• Why raising interest rates may not solve inflation• Iceland’s inflation-indexed mortgages• How bank credit creates money, inflation and asset bubbles• Why Iceland needs more local and community banks• How Iceland could achieve stability while retaining the krónaProfessor Richard Werner is an internationally recognised economist and banking expert, best known for his research into credit creation, monetary policy and the role of banks in economic development.Hosted by Frosti Logason.