Iceland’s new PM rejects EU, but embraces EU economic goals

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REYKJAVIK (Reuters) – Iceland must find stability by aiming for the same economic goals as those set for European Union states, even though it is skeptical about joining the EU and will keep its own currency, the new prime minister said.

Iceland is still recovering from the collapse of its top three banks in late 2008 and although growth has returned, many Icelanders are disappointed at what they see as a slow recovery.

Sigmundur David Gunnlaugsson’s center-right Progressive party made big gains in elections last month where voters handed the incumbent Social Democrats the worst defeat of any ruling party since independence from Denmark in 1944.

“It is clear that Iceland will use the Icelandic krona (crown) for the foreseeable future, for the next years at least,” Gunnlaugsson told Reuters Television late on Thursday after formally taking office.

This week he announced that the government would suspend Iceland’s talks on entering the EU, pending a referendum on whether they should continue.

Still, the 38-year-old party leader, who has studied in Copenhagen and at Oxford University in Britain, saw benefits from the economic goals EU countries are supposed to meet, including limits on budget deficits, public debt and inflation.

“All politicians, all political parties, the unions, the employers, the central bank, should all join hands in fulfilling those criteria,” he added.

“Not necessarily because we want to join the EU, but because it makes economic sense, as it is what needs to happen in all cases, whether we want to continue with the krona, or make some changes,” he added.

The Progressive Party and Independence Party won April’s election despite being blamed for pursuing policies that laid the groundwork for the banks’ expansion abroad, and then their collapse in the 2008 credit crunch.

Capital controls to protect the crown are still in force, preventing free flows of funds and hampering investment.

Some in Iceland have suggested the crown should be dumped, or linked to a more stable currency.

Gunlaugsson said he would aim to simplify the tax system and make it more conducive to growth with what he called “positive incentives”, without giving further details.

The new government has also said that it would aim to reduce high levels of household debt, and Gunlaugsson said that this was of vital importance for the economy.

(Writing by Patrick Lannin)

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