> People in favor of Iceland joining the EU should be honest and transparent that it's a pro inflation policy. In fact, Icelandic inflation would probably skyrocket.
It would not, simply because joining the Euro Area isn't a one time thing, but a series of steps, and they wouldn't move forward as long as the inflation is higher than in the rest of the EU.
> If Iceland adopted the EU's interest rate which is mainly set for France and Germany, that would be a 5% interest rate cut which is a massive stimulus.
Interests rate is only one of the factors involved in controlling inflation, and the fact that Italy has been able to adjust its economic policy in order to align its inflation figures to Maastricht requirements and join the Euro Area is a good proof of that.
> People should also look into Optimal Currency Area theory popularized by Paul Krugman
It has been popularized by Robert Mundell in the 60s, for which he got the Sveriges Riksank prize (the "Nobel") in 1999, not by Paul Krugman.
> For all the above reasons, Iceland joining the EU would be the stupidest and most economically illiterate decision in it's history.
The creation of the Euro is IMHO the "most economically illiterate decision in […] history" but moat of your arguments above miss the mark.
Inflation will always be higher in Iceland, because they have a very specific pro union setup which guarantees salary increases each year. As a result of the unions, Icelanders work very few hours and earn some of the highest wages in the world - https://en.wikipedia.org/wiki/Icelandic_Confederation_of_Lab... It won't (I hope) be following Italy as an economic model.
By "popularized" I mean brought to a modern audience in Krugman's New York Times column. It's Mundell's theory of course.
Interest rates are the main way to fight inflation. Glad we agree that the Euro is a silly currency union!
> Inflation will always be higher in Iceland, because
They cannot join Euro until inflation stops being higher, because that's simply how it works: countries must achieve “convergence criterias” before they can enter the single currency.
It would not, simply because joining the Euro Area isn't a one time thing, but a series of steps, and they wouldn't move forward as long as the inflation is higher than in the rest of the EU.
> If Iceland adopted the EU's interest rate which is mainly set for France and Germany, that would be a 5% interest rate cut which is a massive stimulus.
Interests rate is only one of the factors involved in controlling inflation, and the fact that Italy has been able to adjust its economic policy in order to align its inflation figures to Maastricht requirements and join the Euro Area is a good proof of that.
> People should also look into Optimal Currency Area theory popularized by Paul Krugman
It has been popularized by Robert Mundell in the 60s, for which he got the Sveriges Riksank prize (the "Nobel") in 1999, not by Paul Krugman.
> For all the above reasons, Iceland joining the EU would be the stupidest and most economically illiterate decision in it's history.
The creation of the Euro is IMHO the "most economically illiterate decision in […] history" but moat of your arguments above miss the mark.