Publication

This brief examines Iceland's financial and economic situation at the beginning of 2008. The author addresses the question whether adopting the Euro would reduce the country's vulnerability to outside shocks. The brief compares Iceland to Luxemburg, Switzerland and Cyprus and argues that Iceland's limited degree of trade integration and the extraordinary degree of financial integration would make it advantageous for the country to adopt the euro. The author, however, also points out that doing so could not resolve Iceland's fundamental problem, which is its high exposure to the international banking market.